10 Facts about Reverse Mortgages

Reverse mortgages are more popular than ever among those aged 62 and over. In fact, the number of RMs issued doubled between 2003 and 2005 yet many people still either haven't heard of reverse mortgages or aren't quite sure about how they work to relieve the financial pressure of the retirement years. If you're in or entering your retirement years or have aging parents that need financial assistance, you'll want to know more about this very unique financial product.

What are reverse mortgages?
These mortgages aren't like traditional home equity loans where homeowners borrow against the equity in their home and pay a balance back each month. Though RMs unlock the equity in their homes, there is no amount to pay back each month. Instead, the amount issued to the homeowner isn't owed until the home is sold or until the death of the homeowner.

Who qualifies for reverse mortgages?
RMs are available to those aged 62 and older. Some types of government backed mortgages require that applicants have an income below a certain level. However, privately funded RMs don't often impose income restrictions.

I'm over 62 but my spouse is not. Do we qualify for a reverse mortgage?
In order to qualify for RMs, both applicant and spouse must be 62 or older. The age requirement is applicable to only those on the title of the home. If only one spouse is on the home's title, then the age of the other spouse is irrelevant.

Can the equity from reverse mortgages be used for any purpose?
Propriety or non-government RMs can be used for any purpose. Whether to travel, pay medical bills, or just to increase monthly cash flow, it's up to the homeowner to decide what to do with their earned equity. However, the money received from government insured single purpose reverse mortgages is limited to paying for specific items such as home repairs or taxes.

Does getting a reverse mortgage require a credit check?
No. Since RMs are not loans, there is no need for a credit check.

How are the payments from reverse mortgages issued?
Homeowners can choose either to receive a lump sum payment for the amount they qualify for, or to receive monthly payments, referred to as tenure. While a lump sum payment gives you the advantage of having all of the funds at your disposal to use as you wish, with monthly payments the remaining balance can earn interest until it is dispersed. For homeowners that prefer the benefit of both a lump sum payment and monthly payments, there is also modified tenure that combines the two options.

Do I have to pay taxes on money received from reverse mortgages?
No. Unlike home equity loans, the money received from RMs isn't considered a payment; it's your own money, not additional taxable income.

With the funds received from a reverse mortgage affect my government benefits?
This depends on how you choose to have the money issued and how you use the money. Since the money is not considered income receiving monthly payments from RMs does not affect government benefits such as SSI or Medicare. However, if you choose to take a lump sum payment, any amount remaining one month after receiving the money can be considered a resource and can affect your benefits.

I own more than one home. Can I get reverse mortgages on all of the homes that I own?
No, a RM can be taken only for your primary residence. The types of primary residences that apply are single family homes and qualified town homes, condominiums, and manufactured homes.

Do I have to own my home outright in order to qualify for a reverse mortgage?
RMs are available even for those that owe money on their homes. However, you'll need to use the money from the RM to pay off the outstanding debt. So while you may not receive a lump sum payment or extra money each month from the reverse mortgage, you can eliminate your monthly mortgage payment to increase monthly cash flow.

Before taking out a reverse mortgage, be sure to speak with a loan counselor who can help you to better understand how the details of a mortgage of this type apply to your particular situation. RMs are a great option for seniors who have worked hard to build equity in their homes and need extra income after leaving the job or who just want to enjoy their retirement years.

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