December 30, 2015 by HECM Pro
Over the years I’ve been in this business I’ve talked with thousands of people who are interested in finding out more about how they can potentially benefit from a HECM reverse mortgage. The following is a list of the most common misconceptions and frequently asked questions (FAQs) that I tend to hear when working with my clients.
Am I giving up ownership of my home?
Absolutely not. This is a very common misconception we hear from clients in the reverse mortgage industry. Reverse mortgage lenders are not in the business of buying homes, they’re in the business of lending money. You always retain title ownership of the home.
What are my responsibilities under the reverse mortgage?
Your obligation is to continue paying required property charges such as property taxes, homeowners insurance, HOA fees, etc., and maintain the home as your primary residence. As long as you do these things, you’ll never be asked to make a payment on the reverse mortgage or pay it back for as long as at least one borrower is living in the home.
When does the reverse mortgage have to be paid back?
Only when the last borrower permanently leaves the home, whether through moving out or passing away.
Will I lose all the equity I have in my home?
Not necessarily! It depends on how it’s structured and how you use it.
The purpose of the HECM reverse mortgage is to give you access to your equity, but it wouldn’t be a healthy mortgage program if it used up equity quickly. The program is conservative and designed to preserve equity for the long term.
How fast your equity is used up depends a lot on how you use the reverse mortgage. If you use more of the available money, you’ll use up your equity faster. If you use less of the available money, your equity will be preserved for longer.
Because you always remain the owner of the home, any equity you have in the home will always be yours. If you decide to sell the home at some future date, any equity left over after the sale will be yours to keep. If you pass away and your heirs inherit the home, any equity left in it will go to them once the reverse mortgage balance is settled.
Are the interest rates on reverse mortgages really high?
Not at all. Though they can vary somewhat from lender to lender, interest rates on HECM reverse mortgages are very comparable to traditional forward mortgages.
Will the reverse mortgage give me 100% of my equity?
Initially, no. The reverse mortgage is designed at the outset to give you access to a large portion of the value of your home while preserving a good chunk of your equity for the future.
However, the reverse mortgage is also designed to give you access to more of your equity over time. Depending on how you use it and how long you have it, it’s possible you could tap into 100% of the value of your home.
I don’t have a mortgage on my home, can I qualify for a reverse mortgage?
Absolutely! In fact, more of the loan proceeds are available for your use because you have no existing mortgage to pay off.
I still have a mortgage, can I qualify for a reverse mortgage?
Absolutely! The reverse mortgage can be used to pay off an existing mortgage balance and permanently eliminate your mortgage payment.
Can I get a reverse mortgage on a rental property or second home?
Unfortunately, no. A HECM reverse mortgage is only available on a primary residence.
If I die, will my spouse lose the home?
As long as your spouse is on the reverse mortgage and they keep up with the requirements of the reverse mortgage (such as paying property taxes, insurance, etc.), they can live in the home for the rest of their life without having to make a payment or pay the reverse mortgage back. This is also true for an eligible non-borrowing spouse who was younger than 62 at the time of loan origination.
Can I get a reverse mortgage on a mobile home?
Yes, as long as it meets FHA guidelines for manufactured housing.
What if I live in my home for just part of the year. Do I still qualify?
No problem. As long as you live in the home for at least part of the year and the home is your primary residence (where you typically send your mail for instance), you meet the residency requirement.
Can I still leave my home to my heirs?
Absolutely. You always remain the owner of the home, so you’re free to leave it to whoever you wish. Once the last borrower has passed away, the reverse mortgage balance has to be repaid. If the heirs do not wish to keep the home, it will be sold and whatever equity is left over will go into your estate. If the heirs wish to keep the home, they just need to refinance or pay off the reverse mortgage balance.
What happens if the home isn’t worth enough to pay back the entire balance at my passing?
No problem, the reverse mortgage is insured against that. It’s non recourse financing, which means that if there’s not enough value in the home to pay back the entire balance, your heirs are not on the hook for the shortage. The FHA insurance fund settles whatever could not be paid back by the sale of the house.