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    What is a reverse mortgage?

    Simply, a reverse mortgage is a financial product that will improve your lifestyle.

    The program allows you to tap into your home equity, and:

    • receive tax-free monthly income, and/or
    • receive a line of cash reserve
    • receive it in a manner that you select

    ...all while you reside in your home AND maintain ownership. Unlike other loans, you do not repay any funds for as long as you live in your home. Repayment is made when you no longer occupy your home due to a move, sale of the home, or death.


    How Do Reverse Mortgages Work?

    Money from a reverse mortgage is your money... in the form of a loan... that doesn't count as income for tax purposes... and represents a form of partial conversion of the value ("equity") built up in the home over time. It is a special form of home equity loan, hence its name: Home Equity Conversion Mortgage or reverse mortgage.

    What do they do... what can they do?

    Here are some real-life anecdotes about reverse mortgages... the names are changed to protect privacy:

    Madilyn Wilson  |  Mrs. Lutinsky  |  Mrs. DiAzza







    -->

    Do Reverse Mortgages Work?

    What do they do... what can they do?

    Here are some real-life anecdotes about reverse mortgages with only the names changed to protect the privacy of those involved:

    Madilyn Wilson   ||   Mrs. Lutinsky   ||   Mrs. DiAzza


    Who Qualifies?

    Homeowners who:

    • are at least 62 years of age
    • who own and occupy their home
    • whose home is debt-free... or nearly so

      Eligible properties:

    • Single family homes
    • multi-family properties (up to four units), if owner-occupied
    • HUD-approved condominiums.

    Federal Protection:

    FHA-Required Certificate of Counseling:

    All prospective Reverse Mortgage borrowers must attend a free, confidential session with a local, FHA-approved independent agency. This session is required, and guarantees that you will receive independent and objective information to assist you in your financial decision-making. You are welcome to bring trusted associates or family members to this session. If married, both spouses must attend.

    You (and your spouse) will meet with a trained counselor to examine your financial needs and goals to determine if the FHA Home Equity Conversion Mortgage is right for you.

    Following this meeting, you will receive a Certificate of Counseling... which is necessary to have before you can schedule a meeting with us. Once you have the required Certificate of Counseling, then call us to arrange a convenient appointment at your home.

    We are happy to provide you with a list of FHA-approved counseling agencies.

    How Long Is My Certificate of Counseling Valid?

    At least one year.  After that, you should review it by phone with your counselor.

    What about Powers of Attorney? Who gets counseling?

    If the borrower is unable to receive the counseling, then the person holding a Durable Power of Attorney can receive the counseling on behalf of the borrower.

    HUD/FHA County Loan Limits

    Historically, FHA would set loan limits for each county. Today — late 2008 — the old County-based Loan Limits are now Statewide in Pennsylvania.


    A Capsule History of Reverse Mortgages

    1961 First reverse mortgage (RM) loan made by Deering Savings & Loan in Maine
    1977 First reverse mortgage loan program, "Equi-Pay", introduced by Broadview Savings & Loan in Independence, Ohio
    1978 "Reverse Mortgage Study Project" funded by Wisconsin Bureau on Aging
    1979 "Reverse Mortgage Development Conference" sponsored by Wisconsin Bureau on Aging
    1981 San Francisco Reverse Annuity Mortgage (RAM) program closes its first loans
    1982 Garn-St.Germain Depository Institutions Act clears regulatory path for Reverse Mortgages (first federal statutory recognition of reverse mortgages)
    1983 FHA Reverse Mortgage insurance program proposed in housing bill
    1984 First open-ended, risk-pooling Reverse Mortgage offered in New Jersey
    1985 HUD sponsors conference on Home Equity Conversion
    1987
    Congress passes FHA Reverse Mortgage insurance proposal
    First Line-of-Credit Reverse Mortgage developed by VA Housing Development Authority
    Fannie Mae and Freddie Mac announce intention to purchase Reverse Mortgages
    1989
    HUD selects 50 lenders by lottery to make FHA-insured reverse mortgages
    First FHA-insured reverse mortgage made by James B. Nutter Co.
    1990 Congress increases FHA insurance authority to 25,000 loans by 9/31/95
      1991 HUD publishes regulations making RM insurance available to all FHA lenders Reverse mortgage insurance program proposed for Veterans Administration

     

    Glossary of Terms

    Adjustable-Rate Mortgage (ARM):

    A mortgage whose interest rate changes over time based on an index.

    Adjusted Property Value:

    The portion of the total appraised value of a property used in determining the borrower's Principal Limit for a Home Keeper mortgage. It is equal to the lesser of the GSE loan limit or the appraised value of the property.

    Applied Interest Rate:

    The annually or monthly adjusting rate that is charged to the HECM borrower's loan balance.

    Appraisal:

    A professional opinion of the market value of a property.

    Appreciation:

    An increase in the value of a house due to changes in market conditions or other causes.

    Assessed Value:

    The valuation placed upon property by a public tax assessor for purposes of taxation. This may not always be equal to the appraised or market value of the property.

    Asset:

    Anything owned by a business or individual that has commercial or exchange value.

    Average Annual Percentage Rate:

    The actual interest rate (Or the total yearly cost of the mortgage stated as a percentage of the loan amount), which takes into account the base interest rate and the costs of primary mortgage insurance and loan origination fees (or points).

    Cash Flow Statement:

    A statement of income and expenses during a given period.

    Clear Title:

    Ownership of the property that is free of liens and legal questions as to ownership of the property.

    Closing:

    The occasion when a borrower signs loan documents, including the mortgage or deed of trust, and when closing costs are paid. Also called "settlement."

    Closing Costs:

    The costs to a borrower to obtain a mortgage loan. These costs may include an origination fee, title insurance, appraisal, survey, attorney fees, and prepaid items such as taxes and insurance.

    Contingency:

    A condition that must be met before a contract is legally binding; something liable to happen.

    Counseling Session:

    An information session that takes place prior to loan application and that covers the following topics with the potential borrowers: eligibility, loan amount, loan costs, borrower responsibilities, loan repayment, sources of disinterested consumer information on reverse mortgages, and other options for older homeowners.

    Credit Report:

    A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. For HECMs, the credit report is used only to determine if there are liens against the property.

    Deed:

    The legal document conveying title to a property.

    Default:

    Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage loan.

    Deferred Payment Loan:

    A loan that must be used to make home repairs or improvements; generally offered by local government agencies.

    Deficiency Judgment:

    A judgment for the balance of a debt after the collateral has been exhausted.

    Depreciation:

    A decline in the value of property; the opposite of "appreciation."

    Equity:

    The difference between the market value of a property and the homeowner's outstanding mortgage balance or other claims against the property.

    Equity Share:

    An optional fee that is charged to the borrower at the time a Home Keeper Mortgage is paid off. It is equal to 10 percent of the property value at the time the loan is due and payable. The borrower may agree to this fee at loan closing in exchange for higher loan payments.

    Expected Average Interest Rate:

    A fixed rate used to determine the amount of money available to the HECM borrower at loan closing. Not the same as the "applied interest rate" (the interest rate charged to the borrower's loan balance).

    Expense Plan:

    A statement or budget of probable income and expenses usually projected for the coming year.

    Financial Statement:

    A written statement of financial status (or "net worth") that lists and compares assets and liabilities.

    Flood Insurance:

    Insurance required for properties in federally designated flood areas.

    Foreclosure:

    The process by which a lender may sell a mortgaged property (in order to be repaid) if the mortgage loan is in default.

    Funding Date:

    The date on which the originating lender first disburses funds to the reverse mortgage borrower.

    Gross Income:

    Total income before deductions are taken.

    Hazard Insurance:

    Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.

    Home Equity Conversion Mortgage (Hecm):

    A type of FHA-insured reverse mortgage.

    Home Equity Loan (Or Line Of Credit):

    A loan that allows a homeowner to borrow against home equity and pay back the funds in monthly installments; generally the homeowner must meet income qualifications and the lender can foreclose on the home if the borrower fails to make monthly payments.

    Homeowner's Insurance:

    An insurance policy that combines liability coverage and hazard insurance.

    Initial Interest Rate:

    See Applied interest rate.

    Interest:

    The fee charged for borrowing money.

    Liabilities:

    Amounts owed.

    Lien:

    A legal claim against a property.

    Liquid Assets:

    Assets that can be converted to cash quickly and easily without substantial loss.

    Loan Balance:

    The outstanding balance of a reverse mortgage loan. Equal to principal plus financed fees plus all accrued interest.

    Loan Proceeds:

    Payments to a borrower through a reverse mortgage.

    Loan Termination:

    The point at which a reverse mortgage loan is satisfied, either because of a prepayment in full or because a loan has become due and payable and the borrower has paid the lesser of the loan balance or the value of the property.

    Maximum Claim Amount:

    The lesser of a home's appraised value or the maximum loan amount that can be insured by the FHA for one-family residences in the area where the property is located.

    Mortgage:

    A legal document that pledges a property to the lender as security for payment of a debt.

    Mortgage Insurance Premium:

    The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

    Mortgage Note:

    A legal document obligating a borrower to repay a loan at a stated interest rate; the agreement is secured by a mortgage.

    Net Income:

    Total income after deductions are taken.

    Net Principal Limit:

    The total amount of money available to the borrower at any time over the life of the loan. Equal to the principal limit less any payments to the borrower and any financed costs.

    Net Worth:

    Assets minus liabilities.

    Origination Fee:

    A fee charged to the borrower to obtain a mortgage loan.

    Payment Plan:

    The manner in which loan proceeds are paid out to the borrower.

    Principal:

    The actual amount of loan proceeds paid to a borrower, or paid on behalf of a borrower, exclusive of interest charges.

    Principal Limit:

    The total amount of money available to a borrower at loan origination.

    Property Inspection:

    An examination of the exterior and interior of a property to determine its condition.

    Property Tax Deferral:

    A loan that defers payment of property taxes for as long as the borrower lives in the home.

    Real Estate Agent:

    A person licensed to negotiate and transact the sale of real estate on behalf of the owner.

    Refinancing:

    The process of paying off one loan with the proceeds from a new loan secured by the same property.

    Repair Rider:

    A clause in a reverse mortgage loan agreement that requires a homeowner to make home repairs or improvements as a condition of closing the loan. Required repairs. Any repairs identified in the property inspection relating to structural problems, needed roof repair or other property damage that could decrease the value of the property if left untreated.

    Reverse Mortgage:

    A mortgage that pays a homeowner loan proceeds drawn from accumulated home equity; reverse mortgages permit the borrower to retain homeownership, and generally do not require repayment as long as the borrower remains in the home.

    Rising Debt:

    In a reverse mortgage, debt that increases over time as loan proceeds are paid out and as interest accrues on the outstanding loan balances.

    Sale Leaseback:

    A type of home sale plan in which the seller of a home immediately rents it back on a long-term or lifetime lease; the seller receives monthly payments from the sale of the home and pays monthly rent at a market rate.

    Servicing Fee:

    The fee paid by a borrower to cover record-keeping and other administrative costs of processing mortgage payments.

    Set Aside:

    Funds for specified uses that are netted out when determining the borrower's Principal Limit.

    Settlement:

    See Closing.

    Survey:

    A drawing showing the legal boundaries of a property.

    Title:

    A legal document establishing the right of ownership.

    Title Search:

    A check of title records to ensure that a person is the legal owner of a property and that there are no liens or other claims outstanding on the property.

    What's The First Step?

    The first step -- before meeting with us -- is a free, confidential session with a local, FHA-approved independent agency. This session is required, and guarantees that you will receive independent and objective information to assist you in your financial decision-making. You are welcome to bring trusted associates or family members to this session. You and your spouse must both attend.

    You (and your spouse) will meet with a trained counselor to examine your financial needs and goals to determine if the FHA Home Equity Conversion Mortgage is right for you.

    Following this meeting, you will receive a Certificate of Counseling... which is necessary to have before you can schedule a meeting with us. Once you have the required Certificate of Counseling, then call us to arrange a convenient appointment at your home.

    We are happy to provide you with a list of FHA-approved counseling agencies.

    At Application - What You Need

    Please have the following information readily at hand at the application meeting so that we may better serve you:

    Photocopies of:

    • Photo Identification
    • Social Security card or Medicare card
    • Birth Certificate
    • Warranty Deed to property
    • Homeowners Insurance policy
    • Most recent property tax bill (paid receipt if appropriate)
    • Certificate of Counseling
    • Account numbers and addresses for checking accounts
    • Account numbers and addresses for existing mortgages / debts
    • Check for a good-faith deposit covering the cost of appraisal and credit report
      (This amount will be credited to you at the time of closing )

    What Are The Fees ?

    A good-faith estimate of fees is provided at the time of application, and most fees can be included in your loan balance, so out-of-pocket cost is virtually eliminated.

    There is usually no application fee... although there usually is a deposit required to cover out of pocket costs for an appraisal and pest inspection. Lenders requirements will vary.

    HUD charges a 2% mortgage insurance premium (based on the maximum claim amount), and there is a lender origination fee.

    Closing fees cover the costs of:

    • Property Appraisal
    • Pest Inspection
    • Flood Certification Report
    • Title Insurance Policy
    • Credit Report
    • Well Water & Septic System Inspection where appropriate
    • Recording Fees

    Interest Rate Charged:

    The interest rate charged on funds that a borrower receives is adjustable, and is set by the value of the One-Year treasury Bill plus a lender margin of 2.1%.

    The initial rate is determined at the loan closing. It then adjusts annually on your loan's anniversary date, but the change -- up or down -- may not exceed 2% in any one year.

    Additionally, such adjustments may not exceed 5% above your initial loan rate over the life of the loan.

    Does This Annual Adjustment Change My Monthly Income Payments?

    No. Annual interest rate adjustments only affect the rate at which your loan balance grows... interest is added to your loan balance, not paid out-of-pocket. Additionally, interest is only charged on funds that you've withdrawn, not on your total approved amount.

    The  "Expected Interest Rate" - what is it?

    A fixed rate used to determine the amount of money available to the FHA-HECM borrower at loan closing.

    What Is Mortgage Insurance?

    Protection for you.

    Mortgage Insurance ensures:

    • That you will never owe more than the market value of your home. 
    • Neither your assets -- nor those of your heirs -- need ever be used for repayment.
    • If it should it ever happen that your home's value becomes less than the loan balance, then FHA insurance makes up the difference.

    Public Benefits:

    Social Security, Medicare & Medicaid

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    Madilyn Wilson

    Madilyn Wilson invited me into her attractive two-story home in an upscale neighborhood. It was a very comfortable home. As I sat down at the dining room table Mrs. Wilson asked me, "Did you notice the handles on the roof when you came up the drive? I answered warily,"No, I didn't see any handles on the roof."

    "That's right," she said. "There are no handles on the roof... you can't take it with you, and I intend to enjoy life while I'm alive. My children are all raised, they've never missed a meal and they're never going to move back here. They've all got homes of their own. So I want to travel and enjoy myself a little bit. I want to be able to buy presents for my grandkids," She's doing it now.

    Mrs. Wilson completed the reverse mortgage and has been enjoying life more, much more, ever since.

    Go Back   ||   Mrs. Lutinsky   ||   Mrs. DiAzza

    Mrs. Lutinsky

    Mrs. Lutinsky's husband had passed away eighteen months before when she called me about a reverse mortgage. She is a very bright woman but was still angry over his death. In her anger and grief she had tried eating and spending her way out of her sorrow and anger. Thirty-five pounds and $28,000 in credit card bills later, she was being hounded by credit card collectors and was behind an her taxes.

    "They call several times a week, "she told me," from morning until early evening, they are very threatening, and one in particular scares me every time he calls." I was able to call this particular credit card company, back the collector off with the prospect of filing a harassment charge, and do a reverse mortgage for her.

    Mrs. Lutinsky was able to get some financial peace of mind from the reverse mortgage and get her financial affairs into a manageable state. I don't know about the weight loss.

    Go Back   ||   Mrs. DiAzza  ||   Madilyn Wilson

    Mrs. DiAzza

    Mrs. DiAzza's husband had taken care of everything until he suddenly died at the age of 80. His 81 year old wife was left with a greatly reduced income and a lot of bills. Even though Mr. DiAzza was up in years he had been working part-time as a small contractor.

    Mrs. DiAzza, with the help of her adult daughter, was able to go to the free counseling session, do a reverse mortgage, pay her bills and learn how to write checks, and fix the front steps that were in disrepair.

    Mrs. DiAzza's grieving period was made more bearable, all of the bills were paid, and she and her daughter became much closer through the whole process.

    The funds from reverse mortgages can be used for any purpose. I have seen them used to pay back taxes, special travel plans, establish trust funds, renovate homes, and arrange for "final expenses". One recent reverse mortgage was used to pay an upfront deposit to allow an elderly homeowner to enter a nursing home while the residence was being sold at its maximum sales value.

    Go Back

    Frequently Asked Questions

    What If I Have A Lot Of Debt?

    Neither poor credit history nor bankruptcy (as long as it has been discharged) will affect your eligibility. Your HECM program funds can pay off existing debt accounts if you so choose. Federal delinquent debts or any liens on your home need to be paid off and you can use your HECM funds for such purposes. We will work with you to arrange debt payoffs.

    What If I Have A Mortgage Or Lien On My Home?

    You may pay off an existing debt before applying, or use HECM program funds to pay off these debts at closing. Even if you use all of your HECM program funds to pay off existing debt, you've eliminated your monthly repayment obligations on those debts, freeing up your income for other uses.

    Am I Locked In? What If My Needs Change?

    No, you are not locked in. There are several different plans, you can change at any time, and we will assist you in determining how you would like to receive your tax-free money.

    Plans include:

    • Tenure Plan:

      • receive fixed monthly income for as long as you live in your home

    • Term Plan:

      • receive fixed monthly income for a period of time that you select

    • Line of Credit:

      • receive funds at times and in amounts that you select, up to your approved limit. Or, you may receive one lump sum. Funds remaining in this account will grow, creating more available funds for you.

    • Combination:

      • Combine the Tenure Plan or the Term Plan with a Line of Credit.

    Can I Repay My Loan?

    Certainly. You may make full or partial repayment at any time, and apply any amount. Full repayment will terminate the loan program.

    What Happens If I Want To Sell My Home Or Move?

    If you sell your home or permanently move out, then the loan balance needs to be repaid. The program does not restrict your decision to sell your home.

    If I Move Out Or Die, Does The Lender Take My Home?

    Absolutely not. When you move, you will be responsible for using the proceeds from your sale to repay the loan balance. If you die, your estate needs to contact us to determine how the loan balance will be settled. Your estate is also responsible for the sale of your home or determining other repayment options.

    What If I or My Spouse Needs Nursing Home Care?

    • If you are married: As long as one homeowner is remaining in the home, the loan and its terms continue... with you having complete access to your funds.

    • If you are single: Short-term, intermittent nursing home stays will not affect your loan. If you stay in a nursing home for twelve consecutive months and do not intend to return home, then repayment of the loan will be required.

    What If My Home Needs Repairs?

    If your home does not meet the FHA minimum standards (as determined by the appraisal), repairs can be made using your HECM loan funds after closing.

    Caution: FHA has minimum standards. If repairs are required to meet FHA minimum standards, then the estimates for those repairs cannot exceed 15% of your home's value. If they do, then those required repairs need to be completed before closing.

    • Repair Addendum

      • If your property needs repairs, you will be asked to sign a "repair addendum" as part of your loan agreement. Basically, this agreement involves setting aside a lump sum of funds from your loan to pay the costs of the materials and the labor for repairs. When the repairs are completed, the funds are paid jointly to you and the contractor(s) who made the repairs.

      If you have a HECM loan, the lender may require one or more inspections by a HUD-approved inspector during the course of the repair work. When all repairs have been completed and inspected, the funds are paid out and added to your loan balance.

    • Follow-up Inspection(s)

      • The appraiser does the follow-up inspection(s) to see that necessary home repairs are completed He or she is the one who originally noticed the condition that needs correction.

    • Cost Of Repairs

      • The cost of repairs should not exceed 15% of the appraised value of the home or $10,500, whichever is less. Most repairs (except safety conditions or termite damage) can be done after the loan closes.

    How Will This Affect My Heirs And Their Inheritance?

    Any remaining home equity remains with your estate, so home equity may be preserved for inheritance... but this depends upon the length of time that you participate in the program. The longer you receive income from your home equity, the less equity that is left for inheritance.

    When the loan balance is repaid (for example, with life insurance proceeds), any remaining equity stays with your estate. Once repaid, heirs may sell the home, or keep the home in the family. Your remaining assets are completely protected.
     

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