A reverse mortgage is a loan that enables seniors who owns a home and is 62 years and older, to convert a portion of his/her home equity into tax-free* income. A reverse mortgage lender pays you with the equity you built over the years while you continue to enjoy living in the comfort of your own home.

HOW DOES REVERSE MORTGAGE WORK?

Here is a high-level summary of how a reverse mortgage works:

• You are homeowner, 62 years or older, with a small amount of money left pay on your house.  You would like to have more income, but you can’t afford to refinance your house and pay the forward mortgage lender monthly payments.  Moving out and selling your home is the last option on your mind.
• You contact a reverse mortgage lender and they determine based on your age, home value, interest rates and where you live, how much money they can give you.
• You continue to live in your own home and you still own it, not the lender.  The only change is that you will receive payments from the bank to use on whatever you would like to.
• You pay back the loan, with interest, when you leave your home. You can never owe the lender more than what the current value of your home is since it is insured.

1)  THE BANK OWNS YOUR HOME.

False.  The lender does not own your home.  In fact, you will still retain the title to your home when you have a reverse mortgage.   As long as you keep your property taxes and insurance up-to-date and paid, the lender cannot foreclosure on you.   That’s the truth!
 
2)  WHEN THE REVERSE MORTGAGE LOAN BECOMES DUE, THE BANK SELLS YOUR HOME.

False.  The choice is actually up to you.  When it is time to repay the reverse mortgage loan, you have various options of paying the balance that is due to the bank.   These options include paying the balance of the loan and staying in your home or sell your home and use the money to repay the loan.  This common misconception is likely sparked from the fact that many seniors choose to sell their home pay off their loan, which makes sense since you will begin to pay the loan only when you leave.   Why keep a house that you’re not living in?  
 
3)  IF YOU HAVE POOR CREDIT, REVERSE MORTGAGE IS NOT AN OPTION.

False.  Credit scores have very little to no weight in determining your eligibility for a reverse mortgage. It is extremely rare to be denied a reverse mortgage loan based on your credit.   The reason why lenders will pull a credit report on you is to make sure you don’t owe any money (generally taxes) to the government.  Even if you do owe some money to the government, you can use part of your reverse mortgage loan to pay it all off!  
 
4)  YOU HAVE TO BE DEBT FREE TO GET A REVERSE MORTGAGE.

False.  One of the major benefits of a reverse mortgage loan is that you can actually use the cash you receive from the loan to pay off any debt.   You can even use it to pay your remaining balance of your forward mortgage.  If that is the case, your reverse mortgage lender will first determine how much money they can give you and then deduct the amount to pay off your forward mortgage.   The amount remaining is for you to use at your discretion, letting you take that vacation you’ve always wanted! 
 
5)  REVERSE MORTGAGES ARE ONLY FOR SENIORS WHO ARE DESPERATE AND ARE ”HOUSE RICH AND CASH POOR”.

False.  A reverse mortgage is an excellent financial planning tool that allows seniors to enhance their lives by having tax-free income* to use whenever they want and on whatever they want.   Reverse mortgages allows seniors to feel more secure, knowing that money is available to use if they need it on medical bills, home-repairs, your favorite charities or even vacations.

In a regular mortgage arrangement, you can take out a loan to be able to purchase your own home. In a REVERSE MORTGAGE LOAN OPTION, you receive money from the reverse mortgage lender in exchange for the value of your home equity (or your home, if you own it entirely).

A reverse mortgage lets you convert home equity back to cash for use in daily living, as retirement income or as money for medical expenses, grand vacation, your children’s school tuition, and other big expenses.
 
The reverse mortgage is exactly the reverse of the regular home mortgage: 

REGULAR HOME MORTGAGE
You convert cash to home equity; for people starting out to build their home equity.
REVERSE HOME MORTGAGE
You convert home equity back to cash; for people who wish to enjoy their home equity investment.
 
Reverse Mortgage vs. Home Equity Loans
A reverse mortgage loan is somewhat similar to the home equity loan that you may have heard about or taken out before. 
 
In a home equity program, your home equity is collateral for a lump sum loan or line of credit.  After you get your loan, you are expected to commence with your monthly payments.
 
In a reverse mortgage arrangement, though, you will get money from your home equity, but you are not expected to begin paying immediately.

A reverse mortgage enables seniors to borrow the equity they built in their home over the years. The difference between a reverse mortgage loan and a home equity loan is that with a reverse mortgage, you don’t make the same monthly mortgage payments as you would with a home equity loan. In fact, the bank will pay you to live in your home and you don’t have a to pay a dime back until you leave your home.

 The following list will help you identify most of the major pros and cons of a reverse mortgage.
 
REVERSE MORTGAGE PROS AND CONS: 

• PROS:  Tax-free income.  One of the biggest advantages of a reverse mortgage is that you can use the equity from your home as tax-free income*.  If you choose the monthly payment option (payment from the lender to YOU, that is), you will have a guaranteed source of income for the rest of your life.
• CONS:  Terminology.  A lot of real estate terminology is used when referring to a reverse mortgage.  You’ll hear it from your reverse mortgage counselor, lender, financial advisors and family members.  This may all be confusing at first to understand the difference between a HECM and Home Keeper, or what the 203-b limit is for your neighborhood is, but RMhelp.org was designed and developed with seniors in mind and will always be here to answer all of your questions.
• PROS:  Home ownership.  Perhaps the best pro of a reverse mortgage is that you will continue to live in your home and be the sole owner of it.  The bank does not own your home when you take out a loan.
• CONS:  Fees.  The fees associated with a reverse mortgage are slightly higher than that of the traditional forward mortgage loan that you likely used to purchase your home. The good news is that you can usually pay the fees with the loan itself, which many borrowers end up doing.  Also, the Federal Truth in Lending Act requires reverse mortgage lenders to fully disclose all of the costs and terms associated with the reverse home equity loan.
• PROS:  No impact on Medicare and Social Security eligibility.  That’s right.  A reverse mortgage will not impact your eligibility on Medicare or Social Security.  It is always advisable to visit a financial advisor for the details prior to taking out the loan.
• CONS:  Property tax and insurance. Another con of a reverse mortgage is that you are responsible for still paying for your property tax and insurance.  You can always use the income from the reverse mortgage to pay for it.  If you fail to pay your property tax and/or insurance, you may be required to payback the loan earlier.
• PROS:  No income requirements.  Since a reverse mortgage pays you tax-free income, there are no income requirements when you take out a loan.  Remember, that lender pays you to live in your home!
• CONS:  Age.  Reverse mortgages are limited to those who are 62 years old or older.  Unfortunately, if you’re 61 and ½, you still will not qualify for the loan.
• PROS:  Bad credit, no problem!  Your credit score has no bearing on your eligibility for a reverse home equity loan nor affect the calculation of your loan value.  Your home value is based on your age, current interest rates and property value.

To read more about reverse mortgages, visit our reverse mortgage information center here.

• Own your home:   With a reverse mortgage, you own your home, not the lender.
• No income or credit requirements:   Income and credit will not impact your ability to qualify.  So if you have bad credit, no credit, or even no income, you should still apply for the loan.
• Tax-Free Income:   One of the biggest advantages of a reverse mortgage, you will not be taxed on the money the lender pays you.

Cons of reverse mortgages in Arizona are:

• Fees:   There are a handful of fees that the borrower needs to pay associated with the loan.  The good news is that the fees are usually wrapped up in the loan, which means your home’s equity will cover these charges.
• Compound interest:   For most of the reverse mortgages, interest on the loan compounds.

• The state of Michigan also requires that anyone taking out a reverse mortgage must have homeowner’s insurance. 
• You must be age 62 or older.
• In Michigan, income from a reverse mortgage is not taxable, and it will not count against Medicare eligibility or benefits.   However, the added income can affect Supplemental Security Income and Medicaid.

HOW CAN I RECEIVE MY PAYMENTS FROM A REVERSE MORTGAGE?  
 
There are five ways to receive payments:

• The tenure plan, which gives you equal monthly payments for as long as you live in the house.
• Term, which is equal monthly payments for a predetermined amount of time. 
• Line of credit, which acts like a savings account.  The money is yours for you to use until it runs out.  
• Modified tenure, which gives you a line of credit, but also gives you monthly payments for as long as you live in the home.  
• Modified term, which also gives you a line of credit, but pays you monthly payments for a fixed period of time.    

Financial advisors in Michigan caution that you should carefully evaluate the open-ended nature of this type of loan.   For example, if you receive a certain amount of money every month, to offset the cost of living in Michigan, you have to discern whether that amount will go as far toward your expenses later down the line.

• Your Age.  The older you are, the more money you will receive.
• Home Value and Location.  If your home is in an area where the average home value is higher than the national average, you will receive more money.   If your home is in an area where the average home value is lower than the average, then you will likely receive a lower loan amount.
• Interest Rate.  Depending on the type of loan, you loan amount will be determined by the current interest rates.  

WHAT TYPES OF PRODUCTS ARE AVAILABLE? 
There are three main products to choose from when you shop for a reverse loan.  These options are:

• Home Equity Conversion Mortgage (HECM) – a program backed and insured by the federal government.
• Home Keeper ® - A Fannie Mae loan, this program allows you to borrow more than you can with the HECM loans.
• Jumbo Cash Account – Designed for seniors with higher home values, this option provides the highest lending limits for borrowers.

• You remain the owner of your home
• Your money is treated as tax-free income
• You don’t repay the loan until you leave your house 

REVERSE MORTGAGE PRODUCTS IN FLORIDA

Home Equity Conversion Mortgage (HECM) – The most popular reverse mortgage out there making up over 90% of the reverse loans funded, the HECM (pronounced heck-um) is a loan that is insured by the federal government.

Home Keeper ® - A product of Fannie Mae, the Home Keeper allows you to borrow more money than you would be able to with the HECM loans.
Cash Account – A product designed specifically for high valued homes, the Cash Account allows seniors to tap into a greater amount of the home’s equity.
 
HOW DO YOU APPLY FOR THE REVERSE LOAN?

Find a Florida Reverse Mortgage Lender in our database here and request more information today!

• Is at least 62 years old
• Own and lives in the home as their primary residence
• Consults with an approved Fannie Mae Counselor

This reverse mortgage does have an age limit, which is 62 years of age for anyone applying for the loan and any co-borrowers (there can be up to three borrowers on the same loan). All of the borrowers on the Home Keeper Mortgage must consider the home in question their primary residence. While the home does not have to be completely paid off for you to apply for the reverse mortgage loan, you will be required to pay off the balance of your forward mortgage with the first draw from your Home Keeper Mortgage once you are approved.

To be eligible for the Home Keeper Mortgage from Fannie Mae, your home must meet certain requirements. The home must be a single-family house, condominium or a unit within a planned unit development (PUD). Visit our reverse mortgage lender directory and contact your local lender for more information on the requirements.

The next and final step before applying for the loan is for you to meet with an approved reverse mortgage counselor. This meeting is to help inform you of the advantages and disadvantages of a reverse mortgage and will also be an opportunity to have any questions you may have answered.