To qualify for a reverse mortgage, you must be age 62 or older and own your home. Your home must be your principal residence and meet U.S. Department of Housing and Urban Development (HUD) minimum property standards.
Both a reverse mortgage and a home equity loan use the equity you have in your home to generate cash. However, with a home equity loan, you need to make monthly payments on the principal and interest. With a reverse mortgage, you don’t need to make any payments for as long as you stay in the home. The loan is repaid only after you permanently leave the home.
You can use the proceeds in any manner you see fit. Common uses include paying monthly bills, fixing up your home, paying for prescriptions and health care, traveling, helping children or grandchildren, and planning against an unexpected expense.
The amount you can borrow depends on the following factors:
- Your age
- Current interest rates
- Appraised value of your home
In most cases you must have approximately 50% equity in your home. Funds from the reverse mortgage pay off whatever existing mortgages you have on the property. You may use any additional amount you qualify for in any way you see fit.
You will be asked for documentation to demonstrate your ability to pay your homeowner’s insurance and your property taxes. Some seniors qualify for a property tax reduction or waiver; check with your local county tax authority for information.
The funds from a reverse mortgage generally do not affect regular Social Security or Medicare benefits. However, needs-based benefits, such as Medicaid and Supplemental Security Income (SSI), may be impacted. A Middleburg Bank reverse mortgage consultant can provide additional general information, but you should contact a tax professional about your particular situation.
A HECM to HECM refinance may be possible. If the home has increased in value this option can be advantageous because more equity may be available.
Most reverse mortgages have an origination fee, closing costs, and a mortgage insurance premium. These can be paid from the proceeds of the reverse mortgage itself. The costs are paid along with the interest when the home is no longer your primary residence.
The loan is repaid when the home is no longer your primary residence.
The reverse mortgage loan must be paid when one of the following occurs:
- All borrowers permanently move out of the home
- The last surviving borrower passes away, sells the home, or does not live in the home for 12 consecutive months
- You fail to pay property taxes or insurance
- If the condition of the property falls below what is considered reasonable wear and tear, and the problem is not corrected
The surviving borrower can continue to own and live in the home and enjoy all the benefits of a reverse mortgage.