Reverse Mortgage FAQs

Is it expensive?

Not necessarily. The majority of closing costs and fees can be financed into the loan. The only upfront costs typically required are for the HUD required independent counseling session. Compared to selling a home and moving a reverse mortgage can provide relatively cost efficient access to your home equity.

When does it have to be paid back?

The loan becomes due when all of the homeowners have passed away or permanently moved out of the property provided that taxes and insurance are paid and home is maintained to FHA standards.

Why are there no monthly payments?

There are no monthly payments because the lender expects that when the loan becomes due, the value of the home will be high enough to cover the amount borrowed and interest.

Are there limits on how I can use the money?

No. The funds can be used without restriction.

Does a reverse mortgage sell the home to the bank?

Banks and other lenders seek to make loans and earn interest not to own property; consequently, the bank or lender does not purchase the home. Instead, the bank or lender adds a lien in the form of a reverse mortgage onto the title so that it can eventually collect the amount loaned plus interest.

Will the estate inherit the home?

The estate does inherit the home but there will be a lien on the title. The amount of the lien is the sum received from the reverse mortgage plus interest.

For example, if someoneone with a $250,000 home passes away and leaves a reverse mortgage balance of $80,000, then the estate would sell the home for $250,000, repay $80,000 to the bank, and keep the $170,000 difference.

As a “non-recourse” loan, the only asset guaranteeing the reverse mortgage is the property and not the whole estate. So, if the home sells for less than the reverse mortgage balance, the assets of the estate are not responsible for making up the difference.

Can the homeowner get forced out of the home?

The FHA reverse mortgage exists specifically to help the homeowner to stay in their home. Because a reverse mortgage requires no monthly mortgage payments the homeowner can not be evicted or foreclosed for non-payment. However, the homeowner must still maintain the property and keep current on insurance and taxes.

Can someone outlive a reverse mortgage?

A reverse mortgage is generally only due when all homeowners have passed away or permanently moved out for 12 consecutive months.

Will Social Security or Medicare be affected?

Entitlement programs like Social Security and Medicare are not affected. However, need-based programs like Medicaid can be affected if the homeowner withdraws more funds from a reverse mortgage than the program’s income limits allow.

Are taxes owed on a reverse mortgage?

Loan proceeds are not considered income and are not taxable. The interest is tax deductible when it is repaid.

Is it similar to a home equity loan?

The similarity to a home equity loan is only that it uses the home as loan collateral.

  • Anyone can apply for a home equity loan. A homeowner must be at least 62 to apply for a reverse mortgage.
  • A home equity loan requires disposable income and stable credit history. Income and credit are generally not considered in a reverse mortgage.
  • A home equity loan must be repaid over 5 or 10 years. A reverse mortgage is generally not repaid until the homeowner passes away or permanently moves out for 12 months.
  • A home equity loan has few fees beyond interest. A reverse mortgage usually has closing costs.
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