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Top 10 Reverse Mortgage Questions

Deciding whether a reverse mortgage is right for you is a big decision, and educating yourself on the topic is a great way to ensure you make the best decision for you and your family.

We get questions every day about reverse mortgages from folks just like you. Here are 10 of the most common.

1. What is a reverse mortgage?

A reverse mortgage is a unique, federally insured loan created by The U.S. Department of Housing and Urban Development (HUD) that allows homeowners 62 years of age and older to draw on the equity in their home, which is paid to the homeowner in a variety of payout options. (See question #10: How do I receive my payments?)

A reverse mortgage loan does not require repayment so long as:

  1. The homeowner maintains the property as the primary residence.
  2. Property taxes are paid.
  3. Home insurance is paid.
  4. The property is maintained to FHA guidelines.

Another caveat of a reverse mortgage is the requirement that the applicant receive information about the terms and conditions of the loan from a HUD-approved reverse mortgage counseling agency. Contact us for a list of HUD-approved reverse mortgage counseling agencies, or call the Housing Counseling Clearinghouse at 1-800-569-4287.

2. Is my home eligible for a reverse mortgage?

For the most up-to-date information on homes eligible for a reverse mortgage, contact us today. In general, the guidelines for reverse mortgage eligible homes include:

 

  • Single-family homes
  • Detached homes
  • Townhomes
  • Two-four unit owner-occupied properties
  • FHA-Approved Condominiums
  • FHA-Approved Manufactured Homes

3. What are the differences between a home equity loan and a reverse mortgage?

The single biggest difference between a reverse mortgage and home equity loan is that with a home equity loan, you must have enough income to cover the debt plus make monthly principle and interest payments. So long as you maintain the home as your primary residence, pay taxes, homeowner’s insurance, and maintain the property in good condition, you needn’t make payments on the reverse mortgage loan.

Let’s not forget another major difference between the loans. Only seniors age 62 and above can take advantage of reverse mortgage loans, where home equity loans do not have a minimum age requirement. Contact us today for more information on the best way to tap your home’s equity.

4. How much cash can I expect to get?

Your cash payout is based on a few variables.

  • The age of the borrower;
  • The current expected interest rate;
  • The mortgage option selected;
  • The amount of home equity; and
  • The appraised value of the home.

For example, a younger person with a higher value home and the same expected interest rate will typically be eligible for less than an older individual with the same value home and circumstances. What does this mean for you? Contact us, and we’ll get to work on real numbers and information, all in plain English.

5. What happens if I outlive the loan? Will I have to repay the lender?

No, so long as you live in the home as your primary residence, and maintain the home in good condition as well as pay insurance and property taxes.

The loan only need to be repaid once the last surviving borrower passes, the home is sold, or the obligations of the loan are not met.

But let’s not talk about you dying just yet. Let’s talk about the best solution for your retirement finances. Contact us today!

6. Must my house be paid off for me to qualify for a reverse mortgage?

You needn’t pay off your home to qualify for a reverse mortgage loan. However, the proceeds you receive from a reverse mortgage must be used to pay off the existing mortgage or liens, if there is a mortgage balance owed. This also means you hold the title to your home.

What else can a reverse mortgage mean to you? Contact The Campbell Home Team today and we can help answer your questions.

7. Do I have to pay taxes on the cash payments I receive?

At The Campbell Home Team, we typically advise that you consult your tax advisor regarding your reverse mortgage terms and how they’ll affect your individual tax situation.

Generally, the cash or proceeds you receive from a reverse mortgage are not subject to individual income taxation. Remember, as the title-holder of your home, you are still responsible for property taxes, insurance, utilities, fuel, maintenance, and other home-related expenses.

Since no payments are due on the loan until, interest on the loan is not deductible on income tax returns until such point the loan is repaid in part or full. Again, we suggest a conversation with your personal tax advisor for all the ins and outs. When it comes to home lending, we’re here and ready to answer all your questions. Contact The Campbell Home Team today.

8. Will my children be responsible for repaying what I borrow against my home when I die?

No.  The sale of your home, to your children or an outside party, will satisfy the loan agreement.

Should your home be worth more than what was owed on the reverse mortgage at the time of your death, your heirs will have the option to sell the home, pay off the reverse mortgage and keep the remaining equity.

If there is no equity left in the home after your death, your executor needs only to turn over the deed to the home, and the contract for the reverse mortgage loan is satisfactorily filled.

Ok, ok enough of the death talk. Back to your finances. Your future. How can we help you get the most of it?

9. Should I use an estate planning service to find a reverse mortgage?

In this instance, we defer to the organization that created this program, the U.S. Department of Housing and Urban Development. HUD advises against using any service that charges a fee, especially any service that requests a lender referral fee, to obtain a reverse mortgage.

HUD provides this information free of charge and can direct you to HUD-approved housing agencies that offer approved reverse mortgage counseling or additional services that are free or have a minimal cost. We’d be happy to supply you with a current listing of HUD approved reverse mortgage counseling agencies, or you can contact HUD directly at 1-800-569-4287.

10. How do I receive my payments?

Reverse mortgage payments can be received in one of five ways:

       1. Tenure: equal monthly payments.

       2. Term: equal monthly payments for a fixed period of months as decided by the borrower.

       3. Line of Credit: payments made in installments or at various times and in amounts dictated by the borrower(s).

       4. Modified Tenure: monthly payments with a line of credit.

       5. Modified Term: monthly payments for a fixed period of months with a line of credit.

WHAT PAYMENT METHOD MAKES THE MOST SENSE FOR YOU?

Contact The Campbell Home Team today, and we’ll guide you through every step of the lending process.

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