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 Whether seeking money to finance a home improvement, pay off a current mortgage, supplement     
 their retirement income, or pay for healthcare expenses, many older Americans are turning to
 “reverse” mortgages. They allow older homeowners to convert part of the equity in their homes into
 cash without having to sell their homes or take on additional monthly bills.

 In a “regular”
mortgage, you make monthly payments to the lender. But in a “reverse” mortgage, you
 receive money from the lender and generally don’t have to pay it back for as long as you live in your
 home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your
 principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay
 in their homes and still meet their financial obligations.

 To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds
 of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many
 reverse mortgages have no income restrictions.

 Three Types of Reverse Mortgages
 The three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered  
 by some state and local government agencies and nonprofit organizations; federally-insured reverse
 mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by
 the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages,
 which are private loans that are backed by the companies that develop them.

 Single-purpose reverse mortgages generally have very low costs. But they are not available
 everywhere, and they only can be used for one purpose specified by the government or nonprofit
 lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can
 qualify for these loans only if your income is low or moderate.
 
 HECMs and proprietary reverse mortgages tend to be more costly than other home loans. The up-front
 costs can be high, so they are generally most expensive if you stay in your home for just a short time.
 They are widely available, have no income or medical requirements, and can be used for any purpose.

 Before applying for a HECM, you must meet with a counselor from an independent government
 approved housing counseling agency. The counselor must explain the loan’s costs, financial
 implications, and alternatives. For example, counselors should tell you about government or nonprofit
 programs for which you may qualify, and any single-purpose or proprietary reverse mortgages
 available in your area.

 The amount of money you can borrow with a HECM or proprietary reverse mortgage depends on
 several factors, including your age, the type of reverse mortgage you select, the appraised value of
 your home, current interest rates, and where you live. In general, the older you are, the more valuable
 your home, and the less you owe on it, the more money you can get.

 The HECM gives you choices in how the loan is paid to you. You can select fixed monthly cash
 advances for a specific period or for as long as you live in your home. Or you can opt for a line of
 credit, which allows you to draw on the loan proceeds at any time in amounts that you choose. You
 also can get a combination of monthly payments plus a line of credit.

 HECMs generally provide larger loan advances at a lower total cost compared with proprietary loans.
 But owners of higher-valued homes may get bigger loan advances from a proprietary reverse
 mortgage. That is, if you have a higher appraised value without a large mortgage, then you may likely
 qualify for greater funds. Location (for example, your neighborhood) is only one part of the
 determination of appraised value.

 Loan Features
 Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or
 Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The
 loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the
 home as a principal residence. In the HECM program, a borrower can live in a nursing home or other
 medical facility for up to 12 months before the loan becomes due and payable.

 As you consider a reverse mortgage, be aware that:

  • Lenders generally charge origination fees and other closing costs for a reverse mortgage. Lenders
    also may charge servicing fees during the term of the mortgage. The lender generally sets these
    fees and costs.
  • The amount you owe on a reverse mortgage generally grows over time. Interest is charged on the
    outstanding balance and added to the amount you owe each month. That means your total debt
    increases over time as loan funds are advanced to you and interest accrues on the loan.
  • Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to a
    financial index and will likely change according to market conditions.
  • Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets for
    you and your heirs. A “nonrecourse” clause, found in most reverse mortgages, prevents either
    you or your estate from owing more than the value of your home when the loan is repaid.
  • Because you retain title to your home, you remain responsible for property taxes, insurance,
    utilities, fuel, maintenance, and other expenses. So, for example, if you don’t pay property taxes
    or maintain homeowner’s insurance, you risk the loan becoming due and payable.
  • Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in
    part or whole.

 Getting a Good Deal
 If you are considering a reverse mortgage, shop around to compare your options and the offered
 terms. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. It
 will help you ask more informed questions, which could lead to a better deal.

  • If you want to make a home repair or improvement or need help paying your property taxes, you
    may want to find out if you qualify for any low-cost single-purpose loans that may be available in
    your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the
    nearest agency, visit www.eldercare.gov or call toll-free, 1-800-677-1116. Ask the AAA for
    information about available “loan programs for home repairs or improvements,” or “property tax
    deferral” or “property tax postponement” programs.
  • If you are interested in a federally-insured HECM, know that all HECM lenders must follow HUD
    rules, and that many of the loan costs including the interest rate will be the same no matter which
    lender you select. Still, some costs including the origination fee, other closing costs, and servicing
    fees may vary among lenders.
  • If you live in a higher-valued home, you may be able to borrow more from a proprietary reverse
    mortgage. But it generally will cost more. The best way to see key differences between a HECM
    and a proprietary loan is with a detailed side-by-side comparison of future costs and benefits.
    Many HECM counselors and lenders can provide you with this important information.
  • No matter which type of reverse mortgage you are considering, be certain you understand all the
    conditions that could make the loan due and payable. Ask a counselor or lender to explain the
    Total Annual Loan Cost (TALC) rates, which show the projected annual average cost of a reverse
    mortgage, including all itemized costs.

 Be a Savvy Consumer
 Be cautious if anyone tries to sell you something, like an annuity, and suggests that a reverse mortgage
 would be an easy way to pay for it. If you don’t fully understand what they’re selling, or you’re not
 sure you need what they’re selling, be even more skeptical.

 Keep in mind that your total cost would be the cost of what they’re selling plus the cost of the reverse
 mortgage. If you think you need what they’re selling, shop around before you buy.

 No matter why you decide to take a reverse mortgage, you generally have at least three business days
 after signing the loan documents to cancel it for any reason without penalty. Remember that you must
 cancel in writing. The lender must return any money you have paid so far for the financing.

 Reporting Possible Fraud
 If you suspect that anyone is violating the law, let the counselor, lender, or loan servicer know. Then,
 file a complaint with:


Reverse Mortgages
If you have any questions, feel free to contact us.