Reverse Mortgage FAQ

It can be scary: making a major decision concerning your biggest investment, a decision involving a place that means the most to you. Deciding whether or not a Reverse Mortgage is right for you takes considerable thought and consideration. We hope the following answers and questions help you in this endeavor.

1. What is a Reverse Mortgage and do I qualify?
A Reverse Mortgage is a unique loan that allows a homeowner(s) 62 years of age and older to draw on the equity in their home, which is paid to the homeowner(s) in cash. The unique aspect of this loan is that it does not require repayment until the homeowner(s) no longer reside in the residence. Created by The U.S. Department of Housing and Urban Development (HUD), this federally insured private loan goes to help those in the senior population meet their financial needs and ease money worries for greater peace of mind.

Prior to applying for the loan, it is required that you are made aware of the terms and conditions of the loan through sources provided by HUD. Contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.

2. Is my home eligible for a Reverse Mortgage?
Homes eligible for a Reverse Mortgage include single-family homes, detached homes, townhouses, and two-to-four unit properties that are owner-occupied. Condominiums must be FHA-approved; some individual condominium units qualify under the Spot Loan program.

3. What's the difference between a Reverse Mortgage and a bank home equity loan?
With a Second Mortgage, or a Home Equity Line Of Credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The Reverse Mortgage pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less.

Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you are still required to pay your real estate taxes and other conventional payments like utilities, but with a Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your Mortgage Payment."

4. How much cash can I expect to get?
The cash you can potentially receive is based on your age, current interest rate, and the appraised home value or FHA's mortgage limits for your area, whichever is less. For instance, an older person with a higher value home will be eligible for more than a younger person with a lower value home at the same interest rate.

5. What happens if I outlive the loan? Will I have to repay the lender?
No. If you or one of the borrowers lives in the home and continues to pay the taxes and insurance, you will not need to repay the loan.

6. Must my house be paid off for me to qualify for a Reverse Mortgage?
No. You do not need to pay off your home to qualify. And it is not required that you meet an income or credit criteria. Plus, you will continue to hold the title to your home.

7. Do I have to pay taxes on the cash payments I receive?
The cash you receive from a Reverse Mortgage is tax-free. But, since you hold the title to your home, you are still responsible for property taxes, insurance, utilities, fuel, maintenance, and other home-related expenses. Interest on REVERSE MORTGAGE MORTGAGEs is not deductible on income tax returns until the loan is paid off in part or whole.

8. How will this loan affect my estate and how much will be left to my heirs?
Once the last surviving borrower dies, sells your home, or no longer resides there as the primary residence, you or your estate is responsible for repayment of the money you received from the Reverse Mortgage, plus interest and other fees. Any remaining equity belongs to either you or your heirs. A “non-recourse” clause can prevent either you or your estate from owing more than the value of your home when the loan is repaid.

9. Should I use an estate planning service to find a Reverse Mortgage? 
HUD advises against using an estate planning service, especially any service that requests a lender referral fee, to procure a Reverse Mortgage. HUD provides this information free of charge and can direct you to HUD-approved housing counseling agencies that offer referrals to a list of HUD-approved lenders and additional services for free or at a minimal cost. Find a HUD-approved housing counseling agency near you by calling 1-800-569-4287 toll-free.

10. How do I receive my payments?
Reverse Mortgage payments can be received in one of five ways:

• Tenure: equal monthly payments
• Term: equal monthly payments for a fixed period of months as decided by the borrower
• Line of Credit: payments made in installments or at various times and in amounts dictated by the borrower(s)
• Modified Tenure: monthly payments with a line of credit
• Modified Term: monthly payments for a fixed period of months with a line of credit

San Francisco FCU offers Reverse Mortgage through a strategic partnership with California Reverse Mortgage Consultants, Member of the National Reverse Mortgage Lenders Association. CA DRE 01524732 NMLS 248216

Click here for general information on Reverse Mortgages.