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FAQs

Reverse Mortgage FAQs

 

 

 

Q: What is a Reverse Mortgage?

A: A Reverse Mortgage enables eligible homeowners to access a portion of the money that has been built up as equity in their homes.  Reverse Mortgages are designed to strengthen a senior’s personal and financial independence by providing access to funds without the burden of a monthly mortgage payment for as long as they live in their home.  Most Reverse Mortgage loans originated today are insured and backed by the federal government through FHA (Federal Housing Administration).

 

 

 

Q: Who can qualify for a Reverse Mortgage?

A: All homeowners, age 62 or older, are eligible for a Reverse Mortgage loan on their primary residence.

 

 

 

 

Q: What factors determine how much I can qualify for?

A: The amount of money you receive is based on:  your age, the appraised value of your home, the program you select, the interest rates and the maximum claim amount which is set by the government. The older you are, the more of your equity you can access.

 

 

 

 

Q: Does my home have to be “mortgage free”?

A: No, as long as there is enough equity in your home, the reverse mortgage will pay off any existing loans on the property.  In some cases homeowners with a large mortgage may not qualify for a reverse mortgage.  It’s worth checking with your lender to see if you qualify. Many senior homeowners are using a reverse mortgage to eliminate their monthly mortgage payments.

 

 

 

 

Q: Does the bank own my home if I take a reverse mortgage?

A: No, you stay in title to your property and you retain ownership.  The bank does not own your home.

Retaining ownership of your home does come with the responsibility of continuing to pay your real estate taxes and homeowners insurance.

 

 

 

 

Q: How do I access the loan proceeds from my reverse mortgage?

A:  If you choose the “fixed-rate” program, all eligible funds must be drawn out at closing.  If you choose the adjustable rate program, access to funds is very flexible.  You can take a lump sum; set up a line of credit; take monthly lifetime payments or payments for a set term; or any combination of these options.

 

 

 

 

Q: Do I have to pay back the money I take from a reverse mortgage?

A:  Yes, this is a loan and it must be repaid in the event that you pass on, if you sell the house, or permanently move out.  At that time, the entire amount becomes due and payable.  Otherwise, there are no required monthly payments.

 

 

 

 

Q: What if I owe more on the reverse mortgage than the house is worth at the time the loan is due?

A:  When your loan becomes due and payable, the loan will be settled for the net sale price of your home. No debt will be passed on to you or your heirs.  The government mortgage insurance makes this possible.  Should your heirs decide to keep the house, they may pay off the reverse mortgage debt in full, or take out another mortgage to pay off the reverse mortgage.

 

 

 

 

Q: I hear the cost of obtaining a reverse mortgage is very high.  Is this correct?

A:  The cost of obtaining a reverse mortgage may seem high initially, but it includes the government’s mortgage insurance, the lenders fees, and standard closing costs.  Reverse mortgages are meant to be long-term solutions to a senior’s financial needs, and not a short term loan.  There is no other loan in existence that will allow you to borrow against the equity in your home and not require you to make any monthly payments.  All of the costs in obtaining a reverse mortgage are paid out of the loan proceeds.  There are little or no out-of-pocket costs in obtaining a reverse mortgage.

 

 

 

 

Q: Are there any restrictions as to what I use the reverse mortgage proceeds for?

A:  No, you can use the money you’re qualified to receive for any of life’s expenses.  You can pay off an existing mortgage, credit card debt, medical expenses, or any other bills you have outstanding.  You can fund home improvements, pay property taxes, supplement your monthly income, help your grandchildren, travel and enjoy going out to dinner once in awhile!  All this is possible without the burden of a monthly payment!

 

 

 

 

Q: Do I have to pay taxes on the money I receive?

 

A:  No, the proceeds from your reverse mortgage are tax-free.  You do not have to report this money as income on your tax return.

 

 

 

 

Q: Does the money I receive affect my qualifications for other government programs?

A:  Reverse mortgages do not affect your Social Security or Medicare qualifications.  Your senior tax exemptions and the “senior freeze” are also not affected by you taking a reverse mortgage.

 

 

 

 

Q: Can I purchase a home with a Reverse Mortgage?

A:  Yes, HUD introduced the HECM for Purchase in January of 2009.  You make a down payment to satisfy the difference between the amount of cash eligible from a Reverse Mortgage and the cost of the property you are purchasing plus any HECM related fees.  This allows you to preserve more of your cash if you are “downsizing”; or buy a larger home than otherwise would be possible.  In addition, there are no income or credit requirements!