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Q. Who are reverse mortgages designed for?
A. They are
designed for homeowners at least 62 years of age with
significant equity in their homes.
Q. Can a
reverse mortgage be taken out if there is already a
conventional mortgage on the home?
A. Yes, but any
existing mortgages must be paid off at closing. The
proceeds from the reverse mortgage may be used for that
purpose.
Q. What
types of homes won't qualify for a reverse mortgage?
A. Generally
vacation homes or other secondary residences, mobile or
manufactured homes not attached to a permanent
foundation, rental properties of more than four units
and homes on leased lands do not qualify.
Q. What
about a home in a "living trust"?
A. A homeowner who
has put the home in a living trust can usually take out
a reverse mortgage, subject to review of the trust
documents.
Q. Will I
have any tax liability for the reverse mortgage
proceeds?
A. Currently the
Internal Revenue Service treats monies received from a
reverse mortgage to be loan advances and not taxable
income. For your specific situation, we recommend that
you consult your tax advisor.
Q. Can the
interest charged on my loan principal be deducted for
tax purposes?
A. The interest
accrues and is deductible when the loan balance and
interest is repaid, when the borrower permanently leaves
the property. For your specific situation, we recommend
that you consult your tax advisor.
Q. How do
the monies from a reverse mortgage affect Social
Security, Medicare or pension benefits?
A. The proceeds
from a reverse mortgage do not affect these benefits.
For your specific situation, we recommend that you
consult your financial advisor.
Q. If I take
out a reverse mortgage will my SSI or Medicaid benefits
be affected?
A. No, a reverse
mortgage will not affect these or most other means
tested benefits as long as the monthly cash advances are
fully spent every month and not accumulated. Programs do
vary by state, so it's advisable to check with the local
Area Agency on Aging. We also recommend that you consult
your financial advisor.
Q. What are
the upfront costs associated with a reverse mortgage?
A. The borrower
will pay an origination fee and actual closing costs,
including charges by the title and escrow companies. All
of these costs can be financed as part of the initial
loan advance.
Q. What is
due when the loan is repaid?
A. The borrower
pays back the cash advances they have received plus
accumulated interest.
Q. What if I
owe more than my home is worth?
A. All reverse
mortgages are "non-recourse" loans, which means that the
borrower can never owe more than the value of the home
regardless of loan balance.
Q. Does the
lender take the house?
A. This is a
misconception; a reverse mortgage is merely a loan
against the property. The title remains in the name of
the borrower and the lender is only repaid the loan
balance or the home value, which/ever is less.
Q. If there
are no payments, what are my responsibilities as a
borrower with a reverse mortgage?
A. You are
required to pay your property taxes, keep current
property insurance in place, maintain the home, and
notify the lender if you will be away from the property
for an extended period.
Q. When does
the loan become due and payable?
A. The loan is due
and payable when the borrower sells the property,
permanently leaves the home, or passes away. In the case
of a couple, it is the second to move out or die that
triggers repayment. Until these events take place you
live in the home and make no payments to the lender.
Q. Do I or
my heirs have to sell the property to repay the loan?
A. No, repayment
can be accomplished by a refinancing of the existing
reverse mortgage by a conventional mortgage loan.
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