HOW LONG DO YOU, AND YOUR SPOUSE, PLAN TO REMAIN IN THE HOME?
Reverse mortgages, like many financial products, have costs associated with them, including some that need to be paid up-front when the reverse mortgage is obtained. Among other things, that means that if you or your spouse are not likely to continue to live in your home for more than several years after the reverse mortgage is obtained, you should pay particular attention to those costs and consider them carefully with your HUD-approved reverse mortgage counselor and whether there may be other more cost effective alternative strategies.
DO YOU RECEIVE ASSISTANCE UNDER ANY GOVERNMENT PROGRAMS THAT ARE BASED ON YOUR CURRENT INCOME?
A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid or receive Supplemental Security Income (SSI), reverse mortgage proceeds may affect your benefits.
Although reverse mortgage loan advances are not considered income, they may affect eligibility for some means-tested benefits, which are public assistance benefits that are only available to people who qualify based on their income and assets. Loan advances that are retained in a borrower’s bank account may be counted as assets, also referred to as "liquid resources" or "reserve." You should consult with a qualified financial advisor to learn how a reverse mortgage could impact eligibility of some government benefits.
Are you considering a lump sum cash draw?
Getting a lump sum cash draw from a reverse mortgage, unless it is immediately spent, could impact a borrower’s eligibility for Medicaid and Supplemental Security Income. Funds that you retain could count as an asset and could impact eligibility. You should contact a qualified financial advisor or the local Area Agency on Aging or a Medicaid expert to learn more.
HOW WILL YOUR REVERSE MORTGAGE LOAN BE REPAID?
A reverse mortgage is a non-recourse loan which means that the borrower or the borrower’s estate will never be obligated to pay the lender more than the loan balance or the current value of the home, whichever is less. When a loan is called due and payable, the reverse mortgage borrower or the borrower’s estate only needs to repay the lesser of either the loan balance or 95% of the home’s appraised value at that time.
Do you know your options for repaying the loan?
A reverse mortgage loan becomes due when the last surviving borrower or remaining eligible non-borrowing spouse passes away, permanently vacates, or sells the home; or if the homeowners fail to meet the loan obligations, which include paying property taxes and insurance, and keeping their home maintained. A borrower can repay the loan balance with proceeds from the sale of the home or by using personal funds to satisfy the debt.
If you pass away, or permanently leave the home, do you know how your heirs or estate will repay the loan?
After the last surviving borrower or remaining eligible non-borrowing spouse passes away, or permanently leaves the home, there are several different ways the loan can be repaid. The heirs or estate can:
• Sell the property and use the proceeds to pay the loan balance;
• Use personal funds or gifted money to repay the loan;
• Purchase the property for 95% of its appraised value;
• Provide the lender with clear and marketable title to the home through a "deed in lieu of
If the borrower’s heirs or estate do not want to take responsibility for selling the property, or purchasing it, the person authorized to act on behalf of the borrower’s estate can provide a "deed in lieu of foreclosure" to the loan servicer and avoid an actual foreclosure.
Do you want someone to inherit your home after you pass away?
Reverse mortgage loans are not assumable and heirs cannot take possession of the home until the debt is satisfied either by repaying the loan with personal funds, funds from the estate, or by obtaining separate mortgage financing, if they qualify for such financing at that time.
Did you know that you can prepay your reverse mortgage loan?
A borrower may prepay all or part of the outstanding loan balance at any time without penalty.
IF YOU ARE MARRIED, WILL YOUR SPOUSE BE A CO-BORROWER ON YOUR LOAN?
Under the rules of a HECM reverse mortgage, borrowers must be at least 62 years old, named on the title of the home, and use the home as their principal residence.
Spouses who do not meet these criteria cannot sign the HECM reverse mortgage loan documents as a borrower and will be identified as either an eligible non-borrowing spouse or an ineligible non-borrowing spouse depending on certain additional criteria.
You should speak to your HUD-approved reverse mortgage counselor about the non-borrowing spouse criteria.
What if your co-borrower spouse survives you?
If both spouses are borrowers, the HECM reverse mortgage features apply equally to both spouses even in cases where one spouse survives the other.
What if your eligible non-borrowing spouse survives you?
When the borrower passes away, an eligible non-borrowing spouse who follows the requirements may be able to defer repayment of the loan and continue living in the home, but they will not be able to receive any remaining loan proceeds and they must continue to meet the obligations of the loan.
What if your ineligible non-borrowing spouse survives you?
An ineligible non-borrowing spouse would not be able to defer repayment of the reverse mortgage loan.
Marc has 36 years in financial services and 6 years in teaching.
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