Reverse Mortgages

I.  Reverse Mortgages

• A lump sum of cash.
• Regular monthly payments for your life or for as long as you live in the home.
• Regular monthly payments for a fixed length of time.
• A line of credit to draw on when you need it.
• A combination of options 2 & 4 or options 3 & 4 above.

Carefully read this booklet before you decide to pursue a Reverse Mortgage. It is designed to help you make a wise decision about the most valuable asset you may own — your home. This booklet outlines some of the things you should think about before applying for a Reverse Mortgage.

When is a Reverse Mortgage right for you?

A Reverse Mortgage might be worth considering if:

• You are committed to staying in your home, either because you don't want to leave or because other housing alternatives are unappealing or unaffordable.
• You want to enhance your lifestyle and enjoy your golden years.
• You want a cushion for major expenses such as medical bills for a serious or long-term condition, or for major home repairs.
• You have a regular need for additional income to live on and your only significant asset is your home.
• You want the peace-of-mind that comes from knowing your financial needs are taken care of.
• You own your home free of debt or you have a small first mortgage.
• You don't plan to leave your home to your heirs through inheritance.

What are some of the potential advantages of Reverse Mortgages?

• A Reverse Mortgage can help you maintain your financial independence or improve your quality of life.
• It allows you to remain in your home and keep title to your property.
• The money you receive is tax-free. It is not usually considered income.
• You make no payments (principal or interest) until the loan ends or the house is sold.
• Your income is not a consideration in obtaining the loan since there are no payments until the loan ends.
• You cannot owe more than the value of the house at the end of the loan.

What are some of the potential drawbacks of Reverse Mortgages?

• Reverse Mortgages are even more complicated than conventional mortgages and the consequences of various options are not always obvious up front.
• They may be relatively expensive compared to other alternatives.
• Although the money you receive is tax-free, it may affect your eligibility for “need based” public assistance benefits such as Medicare, Supplemental Social Security Income (SSI) and Medicaid/MediCal.
• Reduces the equity you have in the property which could cause a potential negative impact for your heirs.
• Reverse Mortgages are often not well understood, even by real estate and legal professionals. (Check out their experience before accepting their advice.)

In general, what types of Reverse Mortgages are available?

• FHA-insured mortgages — Home Equity Conversion Mortgage (HECM).
• Lender-insured.
• Uninsured.

Each type differs in the amount you can borrow, how the proceeds will be paid, and allowed expenses such as interest, closing costs and other fees.

• How much money do I need?
• Is there a way to meet my needs that does not involve getting a Reverse Mortgage?
• Will a Reverse Mortgage make my partner or me ineligible for any government benefits — now or in the future?
• Do I qualify for this Reverse Mortgage?
• How much can I borrow through a particular Reverse Mortgage product?
• How much will it cost me in fees and interest to borrow this money, even if I don't have any “out-of-pocket” expenses?
• Will I have to sell my house before I die to pay off this Reverse Mortgage?
• If I die, and my partner is still living in the home, will he or she have to leave or pay off the loan?
• Will the loan become due and payable if I go to a long-term care or nursing home?
• What will my heirs or I have left after the loan is paid off?
• Are there any early-repayment penalties?
• What are my obligations under the Reverse Mortgage, such as property maintenance, property taxes and insurance?

* This list of questions is reproduced from “Guarding the Golden Years. Reverse Mortgages” published by Consumers Union, West Coast Regional Office, 1535 Mission Street, San Francisco, CA 94103. Website: http://www.consumersunion.org

1. Decide how long you expect to stay in this home. Reverse Mortgages are relatively expensive for the first 2-3 years. If a Reverse Mortgage doesn't work as a long-term solution, you should consider other options.
2. Consult with a HUD-approved Reverse Mortgage counselor before you apply. This information service is usually offered free of charge. A counselor can help you decide whether a Reverse Mortgage or some alternative best meets your needs. They can help you choose between the different kinds of Reverse Mortgages and answer your “what if” questions.
3. Decide if you really need a Reverse Mortgage. Another type of loan may be a less costly solution to meet your financial needs. A counselor can show you alternatives.
4. Include your family, especially grown children, in the decision-making process. Try to get consensus among your heirs before going ahead. If inheritance is an issue, adult children may be willing to help.
5. Shop around and compare offerings! Not all Reverse Mortgages are the same. They can vary substantially in how much money you get — immediately and in the long-term, how the money is paid out, how much you pay in interest and other charges, and in other features.
6. Determine if your Reverse Mortgage affects your eligibility for “need based” public assistance benefits you may receive.

Do you still have questions? Read on. The rest of this booklet will try to make you more knowledgeable about Reverse Mortgages, answer some of the most frequently asked questions and provide pointers to sources of more detailed and specific information.

Go to Part 2 of 5 - Reverse Mortgages — Frequently Asked Questions