Reverse Mortgages – Let’s Cut to Chase!

August 9, 2007

I have another post about Reverse Mortgages entitled, “Reverse Mortgage – Things to Know” but it is rather lengthy so I decided this one will be much more concise and hopefully,  an easier read. 

I admit that I was skeptical of Reverse Mortgages.  Every time I heard the two words, I tuned out immediately.  But a local attorney, Jim Johnstone of McCaysville, Georgia held a workshop and I decided I should go.  I really thought that my suspicions would be confirmed in this workshop and that would be the end of that.  Actually, I learned quite a bit and found out how first impressions can be very misleading.  I am glad I  have gotten the straight of it so that I will be of more benefit to future home buyers who may want to take some of their proceeds from a reverse mortgage and invest in a second/vacation home.  Something else I learned about these mortgages that I didn’t know – you can spend the money on virtually anything you want which means a second home if you so desire.

Now let’s cut to the chase:

What is a Reverse Mortgage?  Unlike traditional home equity loans, the Reverse Mortgage is a home loan that allows seniors 62 years of age or older to use the equity in their home.  It does not require payment of any kind until the last surviving borrower permanently leaves the home.

The Federal Housing Administration (FHA) Home Equity Conversion Mortgage or (HECM) is the most popular and is a government insured loan.  A HECM has no payments, it is non-recourse (meaning the final amount of the loan will never exceed the value of the home) and it’s a tax free line of credit – Tax Free!  Also, closing costs are included in the financing of the loan.  There may be a fee to initiate the loan, estimate $300.

What are the Requirements?  A homeowner and all borrowers are at least 62 years old.  There are no income or credit requirements.  No loan to value, debt ratio issues. 

How Much Money Does the Homeowner/Borrower Receive?  Three factors determine the amount of the eligible equity which may be converted to cash.  They are:

  1. Age of the youngest borrower
  2. Value of the home
  3. Current interest rate

The older the borrower, the higher the value of the home, the more money the borrower gets.

How Safe are Reverse Mortgages?  The homeowner/borrower retains ownership of the home and the lender never owns your home.  The loan is non-recourse and protects heirs from taking money out of their pocket for repayment of the loan.

Will the Homeowner/Borrower Ever Be Forced Out of Their Home?  NO!  As long as a one of the borrowers continues to live in the home, adequate property insurance is maintained, the real estate taxes are paid annually, and the home is kept in good condition, just like any traditional mortgage except you cannot be forced out of your home for non-payment of the loan because there are no payments to make.

How Can a Homeowner/Borrower Receive the Money?  The choice is completely up to the borrower.  Receive it all in a lump sum, in regular monthly payments, or place the money in a growing line of credit.  Or combine all three options.

Who Gets the Home when the Homeowner/Borrower Dies?  The estate will receive the home upon the borrower’s death, just like any traditional home loan.  Heirs have the choice of either keeping the home and paying the lender ors selling the home and using the proceeds to pay the Reverse Mortgage.  All remaining equity is paid to the estate after the Reverse Mortgage is satisfied.

Will the Reverse Mortgage Effect the Homeowner/Borrower’s Taxes or Social Security?  NO!  Equity received from a Reverse Mortgage is a loan and not income and is NOT subject to income tax and will NOT affect social security benefits or Medicare.

Jim Johnstone, Real Estate Attorney in McCaysville, Georgia serving the Blue Ridge area of  the North Georgia Mountains is a Reverse Mortgage Advisor and can be contacted at 706-455-1012.

American Reverse Mortgage Corporation located in Ocala, Florida phone toll free: (888) 370-6620.  You may request a free information package failored to meet your specific financial needs with no obligation.

This post was written for information purposes only and Donna Yates, Realtor with Mountain Investments of North Georgia in Blue Ridge is not a Reverse Mortgage Advisor nor a spokesperson for Reverse Mortgages.  Donna nor Mountain Investments of North Georgia are suggesting that you should secure a Reverse Mortgage. 

Please be wise and prudent and do your own research.  It is fair to note that HUD will provide a Reverse Mortgage counselor to advise and guide a borrower through the entire process.

Donna Yates, Realtor with Mountain Investments of North Georgia welcomes you to our beautiful Blue Ridge mountains.  View great properties for sale:  www.move2northgeorgia.netAdd to Technorati Favorites

Your comments are welcomed.  If you have any questions, please let me know by clicking the comment link below to open up a comment box.  I’ll be happy to write a post about it just for you!  Keep your comments clean, please.  Thankyou. 

The information in this post is deemed reliable but is not guaranteed.


Reverse Mortgages – Things to Know

August 9, 2007

You’ve seen them on TV – some of our favorite actors like James Garner  or Robert Wagner touting Reverse Mortgages.  My defenses went up immediately and yet I trusted James Garner so I had to listen.  But maybe that was the point, get unsuspecting seniors to see a trusted face and then get sucked in.  I thought about my own parents and did not want them to be duped by anyone and so I investigated Reverse Mortgages a bit more. 


Top Ten Things to Know about Reverse Mortages or HECM (Home equity conversion mortgage) provided by Homes and Communities, Housing and Urban Development

1.  What is a Reverse Mortgage?  It is a loan against your home that you do not have to pay back for as long as you live there.  You can turn the value of your home into cash without having to move or to repay the loan each month.  A Reverse Mortgage allows a homeowner to convert a portion of the equity built up over the years of home mortgage payments to cash which may be paid to you in several ways:

  1. all at once, in a single lump sum of cash;
  2. as a regular monthly cash advance;
  3. as a “creditline” account that lets you decide when and how much of your available cash is paid to you;
  4. as a combination of these payment methods.

Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence, die, or permanently move out.  The U.S. Department of Housing and Urban Development, HUDs Reverse Mortgage is a federally insured private loan which allows seniors to supplement social security, meet unexpected medical expenses, make home improvements, and more.

2.  Can I qualify for a HUD Reverse Mortgage?  The borrower must be 62 years of age or older; own your home outright or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse mortgage; and must live in the home.  You are also required to receive consumer information from a HUD approved counselor prior to obtaining the mortgage.

3.  Can I apply if I didn’t buy my present house with FHA mortgage insurance?  Yes, you can.  It doesn’t matter if you didn’t buy your home with an FHA-insured mortgage.  Your new HUD Reverse Mortgage will be a new FHA-insured mortgage loan.

4.  What types of home are eligible?  Your home must be a single family dwelling or a two-to-four unit property that you own and occupy.  Townhomes, detached homes, condominium units, and some manufactured homes are eligible.

5.  What’s the difference between a reverse mortgage and a bank home equity loan?  With a traditional second mortgage or a home equity line of credit (HELOC) you must have sufficient income versus debt ratio to qualify and you are required to make monthly payments.  The reverse mortgage is different:

  • it pays you and is available regardless of your current income
  • the amount you borrow depends on your age, current interest rate and appraised value of your home, whichever is less
  • generally, the more valuable your home and the older you are, the lower the interest, the more you can borrow
  • you don’t make payments because the loan is not due as long as the house is your principal residence
  • you are still required to pay your homeowner’s insurance, real estate taxes, utilities and other conventional payments
  • you cannot be foreclosed or forced to vacate your house because of missed mortgage payments

6.  Can the lender take my home away if I outlive the loan?  No.  You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keep up the taxes and insurance.  You can never owe more than your home’s value.

7.  Will I still have an estate that I can leave to my heirs?  When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees to the lender.  The remaining equity in your home, if any, belongs to you or your heirs.  This debt will not be passed along to the estate or heirs.

8.  How much money can I get from my house?  The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less.

9.  Should I use an estate planning service to find a reverse mortgage?  HUD does not recommend using an estate planning service or any service that charges a fee just for referring a borrower to a lender. HUD provides this information without cost and HUD approved housing counseling agencies are available for free, to provide information.  Call 1-800-569-4287, toll free for the name and location of a HUD approved housing counseling agency near you.

10.  How do I receive my payments?  You have five options:

  1. Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  2. Term – equal monthly payments for a fixed period of months selected.
  3. Line of Credit – unscheduled payments or installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted.
  4. Modified Tenure – combination of line of credit with monthly payments for as long as the borrower remains in the home.
  5. Modified Term – combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

 It’s important to note that the money borrowed can be used for practically anything you need.  For example: to purchase a second home.  If you are interested in a Reverse Mortgage and live or plan to live in the Blue Ridge area – please contact Jim Johnstone, Attorney and Reverse Mortgage Advisor at 706-455-1012.  Please let Jim know that I referred you.

 Donna Yates, Realtor proudly serving the North Georgia Mountains.  For great mountain properties for sale, visit   www.move2northgeorgia.netAdd to Technorati FavoritesThe information in this post is deemed reliable but is not guaranteed.  Source of information in this post:  Homes and Communities, U. S. Department of Housing and Urban Development.  Be sure to consult with an attorney and the experts in this field.  Do not rely on everything you read on the internet – do as much research on your own or have a family member or trusted friend help guide you.