Heritage Mortgage Title

Reverse Mortgage Facts

Definition: A reverse mortgage is a unique financial tool that enables homeowners ages 62 and over to tap into their home's equity. The funds are tax-free (consult a tax advisor) and no repayment is required until the borrower(s) permanently leaves the home. The borrower(s) retains title to the property.

Types: Heritage Mortgage Corporation offers three types of reverse mortgages. The most common is FHA/HUD's version known as a HECM (Home Equity Conversion Mortgage.) The second is a Fannie Mae's version known as Homekeeper. The third is known as a cash account. This comes from various investors and is typically used for higher value homes.

Eligible Properties: 1 to 4 unit owner occupied residences. Most condominiums and PUD's are included. Certain manufactured homes on approves FHA foundations are also eligible.

Qualifications: Applicant(s) must be at least 62 years of age. There are no income requirements and only a minimal credit check. The home must be the borrowers’ primary residence. The home does not need to be owned “free and clear”. Manufactured homes have specific requirements that must be met in order to be eligible for reverse mortgages. Please contact us for a list of these requirements. Commercial properties are currently ineligible for reverse mortgages.

Determination of Loan Amount: The loan amount is based on the home value, the age(s) of the homeowner(s), the current interest rate, and the maximum allowable lending limit under the chosen program. The maximum allowable lending limit varies depending on the reverse mortgage program selected and the market in which the property is located. For FHA products, the lending limit varies by county and may change during the year in certain markets, but normally adjust at the beginning of each year.

Counseling: For consumer protection, all borrowers are required to receive free counseling from a third party HUD approved counseling agency. Check the Counselors link to obtain a list of counselors in your area. In most instances, counseling may be completed by telephone.

Payment Plans: Reverse mortgage borrowers can choose from several payment plan options:

  • Tenure: Borrowers receive an equal monthly check for as long as they live in the home.
  • Line of Credit: Borrowers can draw up to the maximum available amount at any time and in any amount. The remaining line of credit balance increases based on an annual growth rate.
  • Lump Sum Cash Advance: A lump sum of cash is distributed to the borrowers at closing.
  • Term: Borrowers receive a defined amount each month for a specified term. This is useful if the borrowers want or need more cash each month and/or do not expect to remain in their home for their remaining lives. When the defined term is up, the payments will stop; however, the loan is not due until the borrowers cease to occupy the home as their primary residence.
  • Modified: Borrowers may opt to receive funds in a combination of the above options (e.g., ½ as a lump sum, ¼ in a line of credit, and ¼ as a monthly check).

(Fixed Rate Reverse Mortgages only allow a lump sum cash advance)

Processing Time: On average, it may require six to eight weeks to process and close a reverse mortgages. This may require more time in cases where a home is in need of repairs.

Closing Costs: Most closing costs are financed into the loan. Closing costs are fees paid at closing for preparing a mortgage, including but not limited to, origination fee, title search, taxes, insurance, credit report, and appraisal.

Interest Rate: The interest rates vary depending on reverse mortgage program selected by the borrower. All programs have adjustable rates with lifetime caps on the maximum allowable rate. The rates are set by FHA, FNMA and, in the case of higher valued properties, the Private Investor.

Impact on Income Taxes and Social Security: Proceeds from a reverse mortgage are funds from a mortgage loan and are not considered income. Therefore, the funds received are not subject to income tax and may not affect Social Security benefits. Borrowers receiving Medicaid or SSI may not be affected if the funds from the reverse mortgage are spent in the month they are received and all other government requirements/ restrictions are met. We recommend that you consult with your tax advisor and appropriate governmental agencies for further advice.

Repayment: The reverse mortgage becomes due and payable when the last borrower ceases to occupy the home as their primary residence. The reverse mortgage can be repaid either from the proceeds of the sale of the property or other liquid assets, or the heirs can obtain a conventional mortgage to pay off the reverse mortgage. The loan balance consists of the financed closing costs, the cash that was advanced to the borrower and any interest and servicing fees that accrued. Remaining equity belongs to the borrowers or their heirs. The reverse mortgage is subject to a non-recourse limit which states that the borrowers or their heirs are only required to repay the loan balance or the fair market value of the home, whichever is less.