Should I use an estate planning service to find a reverse mortgage?

I've been contacted by a firm that will give me the name of a lender for a "small percentage" of the loan? HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders. Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you.

Pros

Provides a guaranteed source of tax-free income for the rest of your life.

Can choose to receive your money as a lump sum, monthly payment, line of credit, or combination of these ways.

Allows you to remain in your home.

You cannot owe more than the value of your home at the time of repayment, no matter your balance.

You do not have to own your home fully in order to qualify for a reverse mortgage.

If the reverse mortgage balance is less than the value of your home at the point of repayment, your heirs get to keep the difference.

The loan can be repaid without selling your home.

Reverse mortgage income will not impact your Medicare and Social Security eligibility.

Ownership and title of the home remain in your name.

You do not have to worry about making a monthly payment with a reverse mortgage as you would if were to borrow money through a home equity line of credit (HELOC).

Your credit score, savings, and income are not used in the loan calculation. Instead, your age, health, home value, and home equity are taken into consideration.

You can cancel the loan for any reason (right of rescission) during the three day period after your reverse mortgage closes.

Cons

Reverse mortgages can be very expensive. Costly fees, interest rates, mortgage insurance, and closing costs may apply.

Limited to borrowers 62 years old or older.

Reduces the home equity amount you leave to your children or grandchildren.

You still remain responsible for paying property taxes, insurance, and repairs on your home. If you fail to keep up with these costs, you may be required to repay your reverse mortgage early.

Any balance remaining on your first mortgage will be included in the balance of your reverse mortgage.

The loan has to be repaid when you die, sell your home, or no longer use it as your primary residence.

Your heirs will have to pay off the balance plus interest when the loan term ends.

May impact your ability to qualify for Medicaid and Supplemental Social Security benefits.

There are caps on how much you can borrow with most reverse mortgage programs.

A reverse mortgage is more expensive and binding that establishing a home equity line of credit.

You are required to meet with a reverse mortgage counselor before obtaining the loan.

After the three day period passes, the loan is final. Refinancing a reverse mortgage is difficult and costly.

Can I qualify for a HUD reverse mortgage?

To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home.

You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 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.

How do I receive Reverse Mortgage payments?

You have five options:

Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

Term - equal monthly payments for a fixed period of months selected.

Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.

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

Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

Reverse Mortgage Information