What is a Reverse Mortgage Loan?
A reverse mortgage loan helps provide greater financial security to well over 250,000 seniors in the U.S. Find out why today’s savvy financial service professionals utilize reverse mortgages to help retirement-aged clients improve their financial futures.
To learn more about reverse mortgages, read through the following commonly asked questions–and consider adding this secure and viable financial planning tool to your portfolio of products.
What is a reverse mortgage?
An FHA reverse mortgage is a government-insured loan for senior borrowers age 62 and older. This financial tool allows the borrower to access a portion of home equity and convert it into cash to utilize proceeds for however he/she sees fit. Common uses include paying for medical bills or other debt, home repair and improvements, traveling and supplementing your client’s retirement portfolio, among others. For more in-depth reverse mortgage information, visit our “What is a reverse mortgage?” page.
How much money can my client get with a reverse mortgage loan?
- Borrower’s age (must be 62 years or older)
- The appraised value of a home
- Current reverse mortgage interest rates
- Mortgage balance
How does my client qualify for a reverse mortgage loan?
To qualify for a reverse mortgage, borrowers must be at least 62 years of age, own their home and occupy it as their primary residence (among other requirements). If they have equity in their homes and are looking for additional income, a reverse mortgage can provide the funding needed to allow them to stay in their homes.
Why should I partner with AAG?
We at American Advisors Group pride ourselves on our thoroughness and the personal relationships we build with our partners and borrowers. As the established leader in the industry, our proven and unique sales and marketing processes and comprehensive training program position us, and our partners, for sustained growth and success. The foundation of who we are and how we behave is based on three core values that our partners have come to expect when working with us: caring, driven and ethical. Caring for our partners and customers. Driven to provide superior customer service. Ethical in how we conduct our business every day. These core values define who we are and how we behave.
What are my client’s payment options with a reverse mortgage?
The length of the reverse mortgage loan is partly determined by the disbursement option chosen, and funds can be disbursed in a number of ways. Proceeds may be provided through:
- A full or partial lump sum
- A growing line of credit
- Monthly payments (tenure or modified tenure plans available)
- Combination of any of these.
The choice is ultimately your clients, but your American Advisors Group partner will educate you on how to guide your client through the disbursement option that is best suited for your client’s situation.
What are the benefits of a reverse mortgage loan?
- Borrowers won’t owe more than the value of their homes.
- As long as the borrower complies with the loan terms, he/she doesn’t have to make payments on the loan.
- With a reverse mortgage loan, the borrower will not lose Social Security or Medicare benefits.
- Reverse mortgages afford borrowers greater financial freedom and control, providing them the dignity and security they deserve.
Isn’t a reverse mortgage loan a last resort?
This is a popular misconception. When used wisely, a reverse mortgage can be a very powerful, viable and strategic financial tool. There is no better product more readily available to the senior population in terms of supplementing retirement, balancing a portfolio and managing retirement risks. However, the reverse mortgage should be evaluated based on the borrower’s particular needs and financial background. Your AAG reverse mortgage partner can help guide you through your client’s specific situation.
How does a reverse mortgage work?
With a reverse mortgage, there are no monthly mortgage payments as long as property taxes, insurance and maintenance are continued to be paid. Many seniors are resistant to the idea of selling the home they’ve lived in for years. That’s why a reverse mortgage is a convenient solution. Your client can stay in his or her home that they are comfortable living in while enjoying an additional revenue stream to cover health care costs or other expenses.
What if I outlive the reverse mortgage loan?
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.
Where can I receive reverse mortgage loan counseling?
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 here. You may also call AAG for a list of agencies near you.
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
- Spoiling the grandkids
Can I have a reverse mortgage loan on a mobile home?
In general, mobile homes are not eligible. However, some HUD-approved manufactured homes that meet FHA guidelines are eligible. You must have a HUD seal affixed to the outside of the home, which confirms that the home meets Federal Manufactured Home Construction and Safety Standards. An AAG specialist can help you determine if your mobile home is eligible.
Over what length of time are loan proceeds distributed?
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. An AAG home equity solutions professional will walk you through your options to determine the best fit for you.
What is a reverse mortgage loan?
A reverse mortgage is a unique financial tool unlike any other in that it offers borrowers the ability to access their home equity without the burden of monthly mortgage payments.¹ Using a reverse mortgage, you can access cash to supplement your income in retirement and age in place in your home.
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.
Is there any risk of losing my home with a reverse mortgage?
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.
How does my loan need to be repaid?
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 a conventional loan.
What happens if my home gains value?
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.
Are reverse mortgages only an option of last resort?
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.
How much money can I qualify for?
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)
- The interest rate of your loan
- Your current mortgage balance (You must use the proceeds to pay off your existing mortgage.)
Can I change my mind after I close the loan?
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.
Does the bank own my home?
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.
Will a reverse mortgage affect my Social Security, Medicare or pension benefits?
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.
How are my reverse mortgage fees and interest rates calculated?
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. An AAG specialist can calculate your exact fees and rates based on the loan options you choose.