How Does Reverse Mortgage Interest Work? For a reverse mortgage, you are charged interest on the proceeds you receive. This interest compounds over the life of the loan until the loan is repaid. Typically, both fixed and variable interest rates are available. Rates are tied to a standard index, such as the 1-year Treasury Bill, or the LIBOR rate, plus an additional margin, most likely an additional 1-3 percentage points. Compare interest rates carefully in considering reverse mortgage options.

What Circumstance Might Make A Reverse Mortgage Inappropriate? If you intend to leave your home within 2-3 years other options may prove less costly than a reverse mortgage, such as home equity loans or no-interest loans. If necessary home repairs are a consideration, investigate grants from local government or non-profits. If property tax payments are motivating you, check for tax-deferral programs first.

Reverse mortgage proceeds do not affect regular Social Security or Medicare benefits. If you are on Medicaid or Supplemental Security Income proceeds must be used immediately. Any funds you retain count as an asset and may affect your eligibility for Medicaid or SSI. To be informed and safe, contact the local Area Agency on Aging, or a Medicaid expert, as early as possible in assessing a Reverse Mortgage.

You may qualify for a reverse mortgage even if you still owe on an existing mortgage on the home. If you take the loan, the reverse mortgage will take ‘first lien’ position, with priority claim on home equity. You may pay off an existing mortgage with the proceeds of a reverse mortgage; generally, all currently outstanding mortgages need to be paid off in full at the time the new reverse mortgage closes. Check the terms of an existing mortgage to understand any conditions related to early payoff.

During the first 12 months of a reverse mortgage borrowers can usually access no more than 60% of the available loan proceeds. Payoff of an existing mortgage -may- allow a higher percentage. After that, the borrower can access as much or as little of the remaining funds as needed. Reverse mortgage payments may be structured as: Tenure - equal monthly payments while borrower is alive and in the house; Term - equal monthly payments for a defined number of months; Line of credit - unscheduled payments or installments; or some combination of these three.

Reverse mortgage loan amounts depend on: the age of the borrower, or the youngest spouse for a couple; the appraised value of the home - appraisal will be required; and current interest rates. Reverse mortgages involving government programs are subject to current FHA lending limits. In general, the older you are the less you owe, and the more valuable your home the larger the amount for which you may qualify.

Does A Reverse Mortgage Leave Home Value For Heirs Or Estate? When the home is sold or the owner dies, the principal, interest and other finance charges must be paid. All proceeds or equity beyond this belong to the borrower’s estate. Reverse mortgages do NOT encumber heirs or estates with debts. If you are inheriting an estate with a home involved in a reverse mortgage, contact the servicer of the loan with details of your situation to learn about your next steps.

Reverse mortgages and home equity loans both use equity as collateral. Home equity loans do not have an age requirement; reverse mortgages require the owner be at least 62. HELOCs must be repaid over time - typically 5 or 10 years; Reverse mortgage payback is generally upon sale or borrower death. Rates on the two may be comparable, but borrowers should shop. Reverse mortgage closing costs are generally higher, but typically, these costs can be financed as part of the reverse mortgage loan.

The types of homes that may qualify for a reverse mortgage include single-family homes 2-4 unit properties, condominiums, townhouses and newer manufactured homes. Co-ops do not qualify. The owner must be at least 62 with enough equity in the home to qualify. Borrower credit and medical status are not relevant to loan payments since you don’t make loan payments on a reverse mortgage. Lenders will assess borrowers’ financial capacity to pay taxes and insurance, and may set aside loan funds 
 to pay these in the future.

A reverse mortgage lends you money against the value owned in your home. Repayment is not required until the home is sold or the borrower dies. Then the loan amount plus interest is repaid by selling the home. The lender has a primary claim a ‘lien’ against the home to secure the loan and interest. Income from the proceeds of a reverse mortgage are generally not taxable. Owners still pay property taxes and insurance