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Reverse Mortgage - FAQs

A reverse mortgage is a loan where the homeowner borrows against the equity in their home and postpones all payments of principal and interest until the home is sold at some point in the future.  The Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s (FHA's) reverse mortgage program.  The HECM is a safe plan that can give older Ohioans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses or make home improvements.

  1. Am I Eligible For A Reverse Mortgage?
  2. How Much Money Can I Get From My Home?
  3. How Are the Funds Paid to Me?
  4. Will the Funds Affect My Eligibility for Government Benefits?
  5. When Will the Reverse Mortgage Loan Become Due?
  6. What Are Some Reverse Mortgage Concerns?
  7. How Can I Learn More About Reverse Mortgages?
  8. Resources


AM I ELIGIBLE FOR A REVERSE MORTGAGE?

By far, the most common reverse mortgage (90%) is the Home Equity Conversion Mortgage (HECM), which features extensive consumer safeguards and is insured by the Federal Housing Administration (FHA).  The HECM eligibility requirements are that:

 
  • You must own your own home.
  • The home must be your primary residence.
  • The youngest owner on the deed must be at least 62 years old.
  • Any mortgage on the property must be low enough to be paid off with the reverse mortgage proceeds.
  • There are no minimum income or credit requirements because no payments are required on the mortgage.
  • Mortgage applicants must take an approved counseling course prior to starting the loan process.

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HOW MUCH MONEY CAN I GET FROM MY HOME?

The amount you may borrow depends on:

 
  • The age of the youngest borrower;
  • The current interest rate; and
  • Your home's appraised value;

In general, the more valuable your home is, the more equity you have in your home, the older you are, and the lower the interest rate, the more you can borrow.  For an estimate of HECM cash benefits, see an online reverse mortgage calculator.  See also the US Department of Housing and Urban Development website for other links, tools and information.

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HOW ARE THE FUNDS PAID TO ME?

You have several options available to receive the money from a reverse mortgage.  They are:

 
  • A lump sum payment;
  • Fixed monthly payments to you (for up to life);
  • A line of credit allowing you to draw on the loan proceeds at any time - usually less proceeds are available with this option; or,
  • A combination of the above.

In general, the more valuable your home is, the more equity you have in your home, the older you are, and the lower the interest rate, the more you can borrow.  For an estimate of HECM cash benefits, see an online reverse mortgage calculator.  See also the US Department of Housing and Urban Development website for other links, tools and information.

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WILL THE FUNDS AFFECT MY ELIGIBILITY FOR GOVERNMENT BENEFITS?

Reverse mortgage proceeds have no effect on Medicare, Social Security retirement and pension benefits.  Generally, reverse mortgage proceeds are excluded as income in the month received, but are treated as a resource the following month by most means tested (low income) benefit programs.

For example, Ohio Administrative Code § 5101:1-39-27.3(D)(7)  Medicaid:  Promissory Notes, Mortgages, Stocks, Bonds and Loans, states that:

Proceeds from reverse mortgages or home equity conversion programs are excluded income in the month of receipt. Proceeds retained until the month following the month of receipt are subject to evaluation as a resource, in accordance with Chapter 5101:1-39 of the Administrative Code.

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WHEN WILL THE REVERSE MORTGAGE LOAN BECOME DUE?

The loan comes due when:

 
  • The borrower dies;
  • Sells the house;
  • Fails to keep the taxes or insurance current;
  • Otherwise breaches the loan agreement; or
  • Moves out of the house for more than 12 consecutive months.

The lender has recourse against the property, but not against the borrower personally and not against the borrower's heirs. Thus the borrower can never owe more than the value of the property and cannot pass on any debt from the reverse mortgage to any heirs.

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WHAT ARE SOME REVERSE MORTGAGE CONCERNS?

  1. The costs associated with a reverse mortgage (below) are generally higher than the costs of other types of mortgages and equity conversion loans, but the biggest portion of the costs, the loan origination fee, can be financed as part of the mortgage:

    • The Mortgage Insurance Premium;
    • The Loan Origination fee;
    • Title insurance;
    • Title, attorney, and county recording fees;
    • Real estate appraisal; and
    • Land Survey (sometimes required).

  2. The interest rate on a reverse mortgage may be higher than on a conventional forward mortgage.

  3. The reverse mortgage interest compounds over the life of the mortgage.  Since no monthly payments are made by the borrower on a reverse mortgage, the interest that accrues is treated as a loan advance.  Each month, interest is calculated not only on the principal amount received by the borrower but on the interest previously assessed to the loan.

    But with the FHA-insured HECM reverse mortgage, the borrower can never owe more than the value of the property and cannot pass on any debt from the reverse mortgage to any heirs.  The sole remedy the lender has is the house, not other assets in the estate.

  4. Reverse mortgages can be confusing for seniors who don't fully understand the terms and conditions associated with the loans.  However in a recent survey, 93% said their reverse mortgage had a mostly positive effect on their lives (2006 AARP survey).

  5. If you are considering a loan that isn't federally insured (a non-HECM loan) be sure you are working with a strong financial institution with a solid track record.

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HOW CAN I LEARN MORE ABOUT REVERSE MORTGAGES?

Before you apply for a reverse mortgage, you must first receive counseling from a reverse mortgage counselor.  Your lender or the Department of Housing and Urban Development (HUD) can give you a list of approved agencies to help you with this.  The counselor will educate you about reverse mortgages and inform you of other options that may be available to you.  There is a fee (about $75) for the counseling, but sometimes the fee can be waived.  See also the resources listed below.

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RESOURCES

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This website provides general legal information and not legal advice.  The law is complex and changes frequently. 
Before you apply any general legal information to a particular situation, consult an attorney. 
If you cannot afford an attorney call 1-866-Law-Ohio (1-866-529-6446) or visit OhioLegalServices.org for your closest legal aid office.

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