Reverse Mortgage FAQs

What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets a senior homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But 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. PMAC's reverse mortgage provides these benefits, and it is federally-insured as well.

To be eligible for a reverse mortgage, the borrower must be a homeowner, 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 loan; and must live in the home. There are no income, health or credit qualifications. You are further required to receive consumer information from government-approved counseling sources prior to obtaining the loan.

There are many advantages to a reverse mortgage. Some of the advantages include:

• A reverse mortgage allows you to remain independent by allowing you to stay in your home and retain home ownership.
• No monthly mortgage payments. You do not need to pay back the reverse mortgage loan or make any monthly payments until you sell the home or permanently move out. In addition, the repayment amount will not exceed the fair market value of the home.
• The money you receive from a reverse mortgage is currently not considered income and is therefore tax-free money. It should not affect your Social Security or Medicare benefits. For your specific situation, we recommend that you consult your tax advisor.
• There are no limits on how you use the money you receive from a reverse mortgage. You may use the money you receive from a reverse mortgage in any way you choose – offering you freedom and flexibility.

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. With a reverse mortgage, you don't make payments, because the loan is not due as long as the house is your principle residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

Yes, but any existing mortgages must be paid off at closing. The proceeds from the reverse mortgage may be used for that purpose.

Homeowners who have put their homes in living trusts can usually take out a reverse mortgage, subject to review of the trust documents.

No. Since reverse mortgage borrowers do not need to make monthly repayments, there are no income qualifications.

Yes. While your property must meet minimum property standards, it doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new reverse mortgage will be an FHA-insured mortgage loan.

The reverse mortgage must be on your primary residence. Most reverse mortgages are taken on single family, one-unit homes. Some programs also accept two-to-four unit buildings that are owner-occupied. Townhouses, detached homes, units in condominiums and some manufactured homes may also be eligible. Condominiums must be FHA-approved. It is possible for condominiums to qualify under the Spot Loan program. The home must be in reasonable condition, and must meet minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.

Vacation homes or other secondary residences, mobile or manufactured homes not attached to a permanent foundation, rental properties of more than four units and homes on leased lands do not qualify.

The amount you can borrow depends on your age, the type of reverse mortgage you select, the current interest rate, the location of your home, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the older you are, the more valuable your home is, and the less you owe on it, the more you can borrow.

Yes. Refinancing your reverse mortgage may make sense if your home increases in value or interest rates drop.

No they cannot. Nor is the loan due. With a reverse mortgage, the title remains in the name of the borrower(s) and you do not need to repay the loan as long as you or another borrower continues to live in the house and keeps the taxes and insurance current.

No. You can never owe more than your home's value. All reverse mortgages are “non-recourse” loans, which means that the borrower can never owe more than the value of the home regardless of loan balance.

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 to your heirs. It is important to remember that you can never owe more than the home’s appraised value when it is sold. None of your other assets will be affected by the reverse mortgage loan. This debt will never be passed along to the estate or your heirs.

No. Repayment can be accomplished by refinancing the existing reverse mortgage with a conventional mortgage loan.

The amount you can borrow depends on your age, the current interest rate, other loan fees and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

You have five options:

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

You are required to pay your property taxes, keep current property insurance in place, maintain the home and notify the lender if you will be away from the property for an extended period of time.

Because reverse mortgages are considered loan advances and not income, the IRS considers them to be not taxable. Similarly, having a reverse mortgage should not affect your Social Security or Medicare benefits.

If you receive SSI, Medicaid or other public assistance, your reverse mortgage loan advances are only counted as “liquid assets” if you keep them in an account past the end of the calendar month in which you receive them. You must be careful not to let your total liquid assets become greater than these programs allow. It may be wise to consult your tax advisor on this.

Another tax fact to bear in mind: interest on reverse mortgages is not deductible on your income tax returns until the loan is paid off entirely.