Reverse Mortgage FAQs. Frequently Asked Questions
DO WE STILL OWN OUR OWN HOME?
Yes, a HECM Reverse Mortgage is a lien just like regular mortgages.
WHAT HAPPENS WHEN WE SELL OUR HOME?
The equity is all yours after paying off the HECM mortgage.
WHAT HAPPENS WHEN ONE OF US PASSES AWAY?
The loan continues as long as it is a primary residence. The remaining spouse, whether younger or older, can stay in the house for life and never have a mortgage payment. This gives lifetime security to the remaining spouse.
WHAT HAPENS WHEN BOTH OF US PASS AWAY?
Your heirs have up to a year to sell the house and keep all the equity after paying off the loan. They can also pay off the HECM and keep the house themselves.
WHAT HAPPENS IF THE HOUSE IS WORTH LESS THAN THE MORTGAGE?
The HECM mortgage is FHA insured. If there is a loss on the sale FHA takes the loss. You cannot lose on a HECM.
ARE THE PROCEEDS TAXABLE?
No. The mortgage is a distribution of your equity. It is not income.
DOES IT INTERFERE WITH MEDICARE, MEDICAID, OR PENSIONS?
No. It doesn’t affect any retirement plan, Medicare, or Medicaid.
I HAVE HEARD THAT THE LINE OF CREDIT EARNS INTEREST. IS THAT TRUE?
Yes, the Line of Credit (LOC) earns interest. The interest earnings also compound. This is a wonderful feature of HECM Reverse Mortgages. The LOC earnings can be used without touching the principal. There is no cost to the LOC until it is used.
WHY IS IT BETTER THAN A HOME EQUITY LOAN THROUGH A BANK?
Several reasons: First of all, a HELOC requires a monthly payment. The HECM doesn’t. There is no growth, and if times are bad such as ’07 and ’08, banks froze their HELOCs so you couldn’t draw any more funds, and in some cases they called the loans demanding a payoff within 30 days.
CAN I BUY A HOME WITH A HECM?
Yes. By putting down a percentage of the purchase price (usually between 50 and 60 percent) you will never have a mortgage payment.
WHAT ABOUT DOWNSIZING?
A HECM is an excellent tool to use for selling a current home, using the proceeds to move into a smaller home. By putting down a percentage of the purchase price (usually between 50 and 60 percent), you can have a HECM mortgage with no mortgage payments.
WHAT IS THE LOAN BASED ON?
It is primarily based on two factors: the value of the home and the age of the youngest borrower. The older you are, the more equity you quality for.
IF I PASS AWAY FIRST, WILL MY WIDOW LOSE THE HOUSE?
No. It is not true that when the husband passes away, his widow will have to move out of our home. HECMs have been revised so that the mortgage is always done on the youngest borrower. No matter which spouse passes first, the mortgage continues.
HOW SECURE IS A REVERSE MORTGAGE?
HECMs are FHA-insured. They are totally secure. Once funded, your mortgage is guaranteed.
HOW DO I KNOW HOW IT WILL BENEFIT ME?
Calculating your benefit is very simple. Given the age of the youngest spouse, the approximate value of the home, and any mortgage payoff, I can quickly give you an estimate of the benefit to you.
WHY SHOULD I USE YOU RATHER THAN A COMPANY I SAW ON TV?
First of all, I am probably less expensive. All that TV advertising costs a lot of money! Secondly, because I am a small, local company, if you need any questions answered, I am a direct local phone call and I can help you right away. When you call that 800 number you saw on TV, it’s frustrating, because you have to keep pressing 1 through 5 prompts until you get a live person—who is always going to be different and may or may not give you the right answers.
HOW DOES HECM HELP US IF WE DON’T HAVE A MORTGAGE?
A HECM puts your equity to work for you. The available portion of your equity is converted to a line of credit (LOC) can be spent with no restriction for whatever purpose makes your life better or easier. The LOC also earns substantial interest. That interest can be spent without touching the principle. A very common use is paying for additional household or in-home nursing help to help you age-in-place rather than having to go to assisted living.
DO I HAVE TO BE MARRIED TO USE A HECM?
No. Just be over 62 and own a home, or want to buy one.
WHAT ARE THE COSTS TO OBTAIN A HECM?
The costs categories are the same as you would see for a traditional mortgage with the exception of an FHA mortgage insurance premium that is charged on all FHA loans.