RMCA, Reverse Mortgage Counseling Association

Reverse Mortgage Basics

What is a Reverse Mortgage?

Reverse mortgages are designed for homeowners age 62 and older. They are called reverse mortgages

because the lender advances the homeowner money based on the equity in the house. The amount of money

depends on the amount of equity in the house and the age of the borrower. To qualify for this loan, the borrower must live

in the home as the main residence. Unlike conventional mortgages, there are no income or credit requirements for these loans. The borrower does not have to make monthly payments for as long as they continue to live in the house. When the last borrower moves out of the home or dies, the loan then becomes due. As with any home, the borrower must continue to pay both property taxes and homeowners insurance. The borrower is also responsible for maintaining the house in good condition.

When Should a Reverse Mortgage be Considered?

If more money is required each month to meet monthly expenses, a reverse mortgage term payment plan might be a good option. Or if large health care expenses are in a borrower's near future, a reverse mortgage with a line of credit may also be a good option. If a borrower has a balance on their existing mortgage, a reverse mortgage can be utilized to pay off the current mortgage.

Why is Reverse Mortgage Counseling Required?

Section 255 of the National Housing Act requires independent third party reverse mortgage counseling from a non-profit HUD-approved counseling agency. The reverse mortgage counselor will provide unbiased information on the process and will answer all questions so that a borrower can make an informed decision on whether a reverse mortgage is in their best interest.

How Can Reverse Mortgage Counseling be Found?

By entering their zip code in the "Find a Counselor" box, a list of "Reverse Mortgage Counseling Association" member agencies will be produced for the borrower that provides in-person or telephone reverse mortgage counseling in the borrower's area. A senior homeowner can either choose to call the selected counseling agency from the list or choose the agency and register for reverse mortgage counseling online.

How Much Does Reverse Mortgage Counseling Cost

A reverse mortgage counseling session usually takes about an hour and may cost about $125 depending on the counseling agency. In some cases, the counseling fee may be waived. "Reverse Mortgage Counseling Association" (RMCA) agencies have the option to finance the counseling fee at closing or waive the counseling fee entirely if a financial hardship exists. Each RMCA member agency has a hardship policy. Reverse mortgage counseling can be conducted in-person and in most states by telephone.

What Kinds of Homes Qualify for a Reverse Mortgage?

To qualify for a reverse mortgage, the home must be a single family dwelling or a two-to-four unit property that is owned and occupied by the borrower. Condominiums must be FHA-approved. Townhouses, detached homes, individual condominium units, and some manufactured homes are also eligible.

How Long Can I Live in the Home with a Reverse Mortgage?

The reverse mortgage borrower can continue to live in the house for as long as the taxes and homeowner insurance are paid. A senior can never owe more than the value of the home.

How Much Money will be Realized with a Reverse Mortgage?

The following factors determine how much will be obtained from a reverse mortgage:

1. Age (generally, the older the borrow the more money is available)

2. The appraised value of the home or the FHA mortgage limit for the borrower's area, whichever is less

3. Current interest rates

What Are the Costs to Obtain a Reverse Mortgage?

Loan closing costs for a reverse mortgage are similar as to what would be paid for a traditional mortgage. Because these closing costs are rarely folded into the interest rate, they can appear sizeable. These costs can range from about $6,000 for a $100,000 home to over $16,000 for a home worth $400,000. Closing costs can be financed into the loan and include the origination fee, mortgage insurance premium, appraisal, and other upfront costs.

What Impact is there on the Heirs of a Reverse Mortgage Borrower?

Over time a large part of the borrower's home equity may be used up leaving less inheritance to the family. If a borrower's heirs decide to retain the home, they have up to one year to pay off the reverse mortgage balance in full. The heirs can also choose to pay off the reverse mortgage loan in full by selling the house and retaining any remaining proceeds from the sale.

What are the Limitations on Using the Funds from a Reverse Mortgage?

There are no limitations on how a borrower chooses to use the proceeds from a reverse mortgage loan.

How Are Reverse Mortgage Payments Received?

1. There are five options available to meet the need of the borrower: Tenure-Equal monthly payments as long as at least one borrower lives and occupies the property as a principal residence

2. Term-Equal monthly payments for a fixed number of months

3. Line of Credit-Unscheduled payments at a time and amount of the borrowers choosing until the line of credit is gone

4. Modified Tenure-A combination of a line of credit with monthly payments for as long as the borrower remains in the home

5. Modified Term-The borrower chooses a combination of a line of credit with monthly payments for a fixed period of months

What Are the Tax Implications of a Reverse Mortgage?

Reverse mortgage loan advances are not taxable and do not affect Social Security or Medicare benefits. Retained loan proceeds cannot exceed the monthly liquid resource limits for Supplemental Security Income (SSI) and Medicaid.