Aloha Mortgage Solutions
Reverse Mortgages with Aloha
700 Bishop Street, Suite 210, Honolulu Hawaii 96813
Find the Answers to 29 Most Common Questions.
Reverse Mortgages Hawaii with Aloha Mortgage Solutions
Get Answers To Your Reverse Mortgage Questions Here!
- What is a Reverse Mortgage?
- Is a reverse mortgage similar to a home equity loan (Home Equity Line of Credit – HELOC)?
- Are there maximum or minimum income requirements to get a reverse mortgage?
- What are the advantages of a reverse mortgage?
- What are the disadvantages of a reverse mortgage?
- What other options are there for me besides a reverse mortgage?
- Will the lender end up owning my home?
- Can a reverse mortgage be refinanced?
- Can I ever owe more than the value of my home?
- What happens if I outlive the loan, can the bank take my home or force me to sell?
- How is the amount of cash I am entitled to calculated?
- Are there any restrictions or limits on how I use the money I receive from my reverse mortgage?
- What are my choices on how I receive the cash?
- Who qualifies for a reverse mortgage?
- Can I still get a reverse mortgage if I still owe money on a first or second mortgage, or do I have to be debt free?
- Would my 2nd home or a resort property be eligible for a reverse mortgage?
- What types of homes are eligible for a reverse mortgage?
- My home is in a “living trust,” is it eligible for a reverse mortgage?
- Are there different types of reverse mortgages?
- When will the principal, interestes and costs of this loan be due?
- Can I leave my home to my heirs when I pass on if I get a reverse mortgage?
- Will my heir or the last surviving borrower have to sell the home in order to pay off the reverse mortgage loan?
- What fees are incurred when doing a reverse mortgage?
- Are reverse mortgage interest rates fixed or adjustable?
- What does “TALC” stand for and why is it important?
- How will a Reverse Mortgage affect my Social Security, Medicare or Taxes?
- What is the reason I must have a counseling session in order to refinance my home into a reverse mortgage?
- Would it be less expensive to sell and move to a smaller home?
- My children aren’t comfortable with the idea of a reverse mortgage because they want the family home. What should I tell them?
1. What is a reverse mortgage?
A reverse mortgage is a unique, versatile loan that allows you (homeowners, age 62 and over) to convert a portion of your home equity into tax-free* cash—without having to sell your home, relinquish title, or ever make monthly mortgage payments. The only time the loan becomes due is when the last borrower permanently leaves the home.
2. Is a reverse mortgage similar to a home equity loan (Home Equity Line of Credit – HELOC)?
A reverse mortgage and a home equity loan both use the equity you have saved up in your home to provide you with cash.
However, they are different in that with a HELOC you must make scheduled monthly payments of principal and interest. In addition, you must qualify for a home equity loan based on income and credit score. However, with a reverse mortgage you make NO monthly payments for as long as you stay in your home and there are NO income or credit qualifications.
- Eliminate mortgage payments for as long as you live in your home.There are never any mortgage payments freeing up cash for anything you choose.
- Remain Independent. A reverse mortgage allows you to remain in the comfort and safety of your home and to retain title/ownership.
- Tax-free money. The money you receive from your reverse mortgage is not considered income, therefore it is not taxed* and will not affect your Social Security or Medicare benefits.
- Freedom and flexibility. The cash you receive from your reverse mortgage is yours to use in any way you see fit, whether it’s to visit the grandchildren, remodel your home or save it for a “rainy-day.”
5. What are the disadvantages of a reverse mortgage?
As in any loan, if you only keep the loan for a short period of time, you may not recoup all the costs of the loan, i.e.; FHA Insurance and other closing costs because you won’t have time to distribute these upfront costs over a number of years. A reverse mortgage may not be for you if the proceeds only temporarily fix a financial problem or if the proceeds are going to be used to fund other financial products that might add additional fees without necessarily adding significant benefits.
- Working a part-time job or putting off retirement for awhile.
- Get a Home Equity Line of Credit.
- Selling and downsizing to a less expensive home or neighborhood.
- Find a roommate.
- Apply for low income benefits.
7. Will the lender end up owning my home?
No, it is not true at all. Thought it is true that with a “conventional” or “forward” mortgage if you miss payments, the lender can take your home and force you into foreclosure. With a reverse mortgage because it is FHA insured and because you make no payments, you can never lose your home. However, the homeowner does remain responsible for the payment of property taxes, insurance, utilities, home maintenance and other expense – just as you would with a standard “forward” mortgage or Home Equity Line of Credit.
9. Can I ever owe more than the value of my home?
No. You can never owe more than the current appraised value of your home. Because the reverse mortgage FHA insured and is a “non-recourse” loan, the lender can never seek repayment from your estate, your assets or your income.
10. What happens if I outlive the loan, can the bank take my home or force me to sell?
Absolutely not. Because the loan is FHA insured and is a non-recourse loan, you can never be evicted In fact, you need not repay the loan as long as you or another borrower continues to live in the house and as long as they keep the taxes paid, the insurance current and they keep the house in “reasonable” condition.
- Your age
- The type of reverse mortgage you choose
- Current interest rates
- The location of your home (Zip code)
- The current appraised value of your home
- FHA’s lending limits for your area
In general: the older you are, the higher the value of your home, and the lower your mortgage is, the more cash you will be entitled to.
12. Are there any restrictions or limits on how I use the money I receive from my reverse mortgage?
You can use the money anyway you see fit, from home improvements, healthcare expenses, paying off credit cards, visiting your grandchildren or simply enhancing your lifestyle. For many homeowners, the extra cash creates a “financial security blanket,” in the event of unexpected expenses.
- Cash-Advance: You can choose to receive the money all at once, in a lump sum.
- Tenure: You can receive equal monthly payments as long as one of the borrowers lives and continues to occupy the property as their principal residence.
- Term: You can choose to receive equal monthly payments for a fixed period of months/number of years.
- Line of Credit: You can get a line of credit; where you can take funds at times and in the amount of your choosing until the line of credit is depleted. This is the most popular option, chosen by more than 60% of reverse mortgage borrowers. And still no monthly payment is required.
- You can also choose any combination of the above as well.
15. Can I still get a reverse mortgage if I still owe money on a first or second mortgage, or do I have to be debt free?
Yes, however, the funds you are entitled to would first be used to pay off your existing mortgages. The remainder of cash, if you have enough equity, could be taken as a cash-advance, monthly payments or a combination of both.
17. What types of homes are eligible for a reverse mortgage?
A reverse mortgage must be taken on your primary residence, where you spend the majority of your time. The majority of reverse mortgages are loaned on single family residences. Some programs also accept two-to-four unit buildings that are owner-occupied. Condominiums are eligible as long as the entire building is at least 51% owner occupied.
18. My home is in a “living trust,” is it eligible for a reverse mortgage?
Yes. In most cases a home that has been placed a living trust is usually eligible. A review of the trust documents would be required by the lender.
- FHA HECM’s – Federally-insured reverse mortgages. The Home Equity Conversion Mortgage (HECM) is a government insured program. The loan amount is based on the FHA lending limits in your particular area by zip code. There are no income requirements, and can be used any way you choose.
- The Fannie Mae – Home Keeper® is a reverse mortgage sponsored by Fannie Mae as a conventional market option to the Home Equity Conversion Mortgage (HECM). It is a government-sponsored program and works like a HECM loan in many ways.
- You sell your home or the remaining borrower passes away
- All borrowers permanently move out of the home
- Due to physical or mental illness the last surviving borrower fails to live in the home for 12 consecutive months
- You don’t pay property taxes and/or insurance
- You allow the property to deteriorate beyond what is considered “reasonable wear and tear” and do nothing to remedy the situation.
21. Can I leave my home to my heirs when I pass on if I get a reverse mortgage?
When you no longer use your home as your primary residence you must repay the lender for the cash received to pay off the existing loan, etc., plus interest and service fees. The remaining equity belongs to you or your heirs. It’s important to know that you can never owe more than the home’s current appraised value when it is sold. Your reverse mortgage will never affect your other assets.
22. Will my heir or the last surviving borrower have to sell the home in order to pay off the reverse mortgage loan?
No, your reverse mortgage loan may be paid off by refinancing with a traditional “forward” mortgage loan, or by any other assets.
23. What fees are incurred when doing a reverse mortgage?
Similar to those fees of a “forward” or standard type mortgage: an origination fee, closing costs, FHA insurance, appraisal, counseling and a monthly servicing fee. Most of these fees are usually included in the reverse mortgage loan itself, lessening the burden to the borrowers and are paid at the end, when the loan becomes due.
24. Are reverse mortgage interest rates fixed or adjustable?
Both fixed and adjustable rate reverse mortgages are available. Adjustable or variable rates are tied to a financial index and will vary according to market conditions.
25. What does “TALC” stand for and why is it important?
TALC is the abbreviation for “Total Annual Loan Cost.” It combines all of the costs of a reverse mortgage into a single annual average percentage rate and is very useful when comparing reverse mortgages.
26. How will a Reverse Mortgage affect my Social Security, Medicare or Taxes?
The IRS does not consider the money you receive from a Reserve Mortgage to be taxable because it is not income. It is considered an advance of equity or a loan. Medicare and Social Security are not affected.
However, if you receive Public Assistance, Social Security or Medicaid, it is advisable to consult a tax adviser as some programs have limits on how much liquid assets you can have on had at the end of any calendar month. If that is the case, another option is not to take too much cash up front, but to take a smaller monthly payment or a line of credit and just take cash-advances whenever needed.
It is also important to note that until the reverse mortgage is paid off, the interest charged is not tax deductible.
A reverse mortgage is an important decision and it is wise to seek the advice of other professionals. The U.S. Department of Housing and Urban Development has a list of certified counselors on their website at www.hud.gov.
27. What is the reason I must have a counseling session in order to refinance my home into a reverse mortgage?
The reverse mortgage counseling session was created to protect and inform seniors of the pro’s and con’s of this type of loan. It will be an opportunity to speak frankly and have all your questions answered from an unbiased, trained counselor. It is a federally required feature of the reverse mortgage process.
28. Would it be less expensive to sell and move to a smaller home?
A reverse mortgage is NOT for everyone. In some cases, if you are not emotionally attached to your home, or if it is too big and has become more of a burden than a home, then selling and buying something smaller is an alternative.
29. My children aren’t comfortable with the idea of a reverse mortgage because they want the family home. What should I tell them?
It is recommended that you discuss the reverse mortgage with your family. In most cases, the children support this option when they understand that it will make their parents life more comfortable by allowing them to remain independent and financially secure.
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