Reverse Mortgages
Learn more about how to turn your home equity into cash!
What is a Reverse Mortgage?
The most common type of reverse mortgage is a loan insured by the Federal Housing Administration (FHA), which is also called a HECM. It allows you to access your home equity and turn it into cash. Borrowers choose a reverse mortgage because it allows them to remain in their homes, as long as they meet the loan terms, and provides funds that can greatly supplement their retirement income and not make a monthly payment out of pocket.
To qualify for a reverse mortgage, you must be 62 years of age and own a home. You will not be at risk of losing your home as long as you continue to pay the property taxes and homeowner’s insurance on the home, keep the home maintained in good condition, and comply with other loan terms.
1. Eliminate Monthly Mortgage
Without the worry of a monthly mortgage payment, you can free up cash to cover other important expenses.
2. Access Cash
The proceeds are tax-free (Consult your financial advisor) and can be used in various ways, like paying health care costs, financing home renovations, paying off debt and more.
3. Stay In Your House
With a reverse mortgage loan, you can afford to stay in your home
What Reverse Mortgage Type Is Best for Me?
Term or Tenure
Received fixed monthly payments to supplement your income.
- With a term reverse mortgage, select the number of years you’d like to receive payments.
- With a tenure reverse mortgage, receive payments for as long as you live in the home and comply with loan terms.
Growing Line of Credit
Establish a growing line of credit that you can tap into when needed.
- Use the line of credit as a standby safety net that can be used when unexpected expenses arise.
- Watch the unused principal grow over time, giving you access to more funds the longer it goes unused.
Jumbo Loan
Use the jumbo reverse mortgage, a proprietary loan that allows you to withdraw up to $4 million in equity on a higher-priced house. With this fixed-rate loan, you can turn more of your equity into cash.
- Receive the full amount at closing.
- Don’t pay mortgage insurance.
- Eliminate your monthly mortgage payment
Lump-Sum Payout
Take the proceeds in one lump sum.
- Draw a portion of your accessible funds in the first year.
- Access the maximum amount of cash to pay off large expenses.
Reverse for Purchase
Buy a home using a reverse for purchase.
- Right-size or downsize to a home that meets your long-term needs.
- Incur no monthly mortgage payments.
Questions & Answers
A reverse mortgage offers borrower’s the ability to access their home equity without the burden of monthly mortgage payments. Using a reverse mortgage, you can access cash to supplement your income without a monthly payment. Since you don’t make a monthly payment, the balance of your mortgage grows each month whereas with a traditional forward mortgage, your balance decreases with each payment you make out of pocket.
You can use the proceeds of your reverse mortgage loan for almost anything. Common uses include:
- Paying off an existing mortgage (a requirement of the loan)
- Paying medical bills
- Paying off a large bill
- Financing home repairs and renovations
- Paying for in-home care
- Vacations and visiting children and grandchildren
No. A reverse mortgage allows homeowners to retain the title and ownership of their home for as long as they live in the home and the loan remains in good standing. Like other loans, this requires the borrower to keep up with property taxes, insurance and maintenance.
No, Social Security, Medicare or pension benefits will not be impacted. Funds from a reverse mortgage are considered loan proceeds and not income. In fact, a reverse mortgage could increase your Social Security benefits. A reverse mortgage can help delay the time you need to begin accessing Social Security, therefore increasing the amount of benefits you are eligible to receive each month. However, in some cases need-based benefits could be affected, such as Medicaid or SSI, since the proceeds from a reverse mortgage improve your monthly cash flow.
The amount of money you can receive from a reverse mortgage depends on four factors:
- Your age
- Your home value (based on an appraisal that will be part of the loan process)
- Your current mortgage balance (You must use the proceeds to pay off your existing mortgage)
- The interest rate of your loan
Reverse mortgage loan funds can be disbursed in a full or partial lump sum, as a line of credit, through monthly payments, or as a combination of any of these.
The length of the loan depends on the way in which you choose to access the loan proceeds. You can access proceeds in one lump sum, in monthly installments for a set term or for as long as you live in the home, or in a line of credit. We can walk you through your options to determine the best fit for you.
Not if you fulfill the obligations of the loan, which include paying your property taxes and homeowners insurance and keeping up with basic maintenance and repairs. If you do not uphold these responsibilities, the loan may become due, and the house may be sold to pay off the loan. If you fulfill these obligations, your loan remains in good standing.
A reverse mortgage is repaid when the last borrower (or even the last eligible non-borrowing spouse) leaves the house or passes away. Typically, the home is sold and the proceeds from the sale are used to pay back the loan. The heirs will receive any remaining equity. If your heirs decide to keep the home, they can pay back the loan in other ways such as by refinancing into another loan. You can also refinance out of a reverse mortgage into a forward mortgage at anytime.
The loan can last for the rest of your life so long as you uphold your obligation to pay taxes and insurance and keep the home in good repair.
If you pass away while you have a reverse mortgage loan, any funds that have not been accessed will be applied to your estate (they remain as equity in the home). When a borrower dies, heirs are given six months to either repay the loan or agree to the sale of the home. The proceeds from the sale are used to repay the loan and any remaining funds belong to the heirs.
The fees and interest rates of your reverse mortgage loan are tied to fixed or variable rates and based on an index and a margin. We can calculate your exact fees and rates based on the loan options you choose.
Before obtaining a reverse mortgage, you must undergo reverse mortgage counseling, which can be completed over the phone in some cases. You can find a list of HUD-approved counseling agencies near you. We can provide you with a list of approved providers.
If the value of your home increases, your equity increases. When you have a reverse mortgage, this means that if the home is sold to repay the loan after you pass away or decide to leave, more funds will be left over for you or your heirs. If there is a significant increase in value, you can refinance to withdraw more of the equity in the home.
No, this is a common misconception. In fact, when used properly as part of an overall retirement income strategy, reverse mortgages can be a smart financial planning tool. In the last several years, retirement researchers and financial advisors have begun to embrace the use of reverse mortgages in retirement income planning.
In general, mobile homes are not eligible. However, some HUD-approved manufactured homes that meet FHA guidelines are eligible. We can help you determine if your mobile home is eligible.
If you change your mind within three days of closing the loan, you can cancel it. This is called the rescission period, and it gives borrowers the ability to cancel the loan without penalty. If you decide to cancel the loan after the rescission period, you can do so by paying back any proceeds you received plus the accrued interest.
John Fricke, Principal Lending Manager/Loan Officer
NMLS 213589 l Canopy Mortgage LLC l NMLS 1359687
www.nmlsconsumeraccess.org
Canopy Mortgage is not an agency of the federal government, and is not acting at the direction of HUD/FHA. Additional program restrictions may apply. Programs, rates, terms and restrictions subject to change without notice. Underwriting terms and conditions apply.
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