Questions and Answers About Reverse Mortgages
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A reverse mortgage allows homeowners aged 62 and older to convert their home equity into cash by taking out a loan secured by their home. The loan proceeds can be received as a lump sum, line of credit, or monthly payments. Borrowers are still responsible for property taxes, insurance, and maintenance. The loan does not need to be repaid as long as the home remains the borrower's primary residence and their obligations are met, or the home is sold. Options exist if borrowers can no longer meet their obligations to avoid foreclosure.
Questions and Answers About Reverse Mortgages
- 1. <Servicer Logo> <Servicer Name> <Address> <City>, <State> <Zip> RM_FAQ_GEN_0414 Questions and Answers About Reverse Mortgages If you have questions or need our help, call <8XX-XXX-XXXX>. What is a reverse mortgage? A reverse mortgage is a loan product that allows seniors to convert home equity into cash. Most reverse mortgages are insured by the Federal Housing Administration (FHA). How does a reverse mortgage work? With a reverse mortgage, you receive money from your mortgage company (drawn against the equity in your home). The money can be paid in a lump sum, through a line of credit, or with monthly payments. Fees and interest are charged on the loan amount (or “loan proceeds”); therefore, over time the loan balance increases and your home equity decreases. What are my obligations? Regardless of whether your reverse mortgage proceeds are still available, with a reverse mortgage you are required to: □□ Pay property-related expenses on time. Property-related expenses, also referred to as “property charges,” include real estate (property) taxes, utilities, homeowner’s insurance (also referred to as “hazard” insurance), homeowner’s association (HOA) fees, and flood insurance premiums (if applicable). □□ Maintain the property’s condition. Property must be maintained in the same condition as when the reverse mortgage loan was originated. □□ Live in the property as your primary residence. This must be certified on an annual basis. Failure to meet any one of, or all the above noted requirements, can result in the loan going into default and can result in foreclosure. In addition, if repairs were required when the loan was originated, those repairs must be completed (and inspected) within 12 months.
- 2. 2 of 5 Questions and Answers About Reverse Mortgages What if I can’t meet my obligations? What are my options? Repayment Plan Used to pay back property-related expenses, also called “property charges,” paid on your behalf by your reverse mortgage servicer. Typically, the amount due is spread out in equal payments for an agreed upon time period. Free Counseling From a HUD-Approved Housing Counseling Agency Your housing counselor will review your financial situation, may assist in balancing your budget or finding resources to help you (i.e., finding you sources of income or financial assistance), and will work with us to resolve your situation. Refinance If you have equity in your home, you may qualify for a new reverse mortgage to pay off your existing reverse mortgage plus any past-due property-related expenses. Sell Your Home You may sell your home to anyone, including your heirs, and use the sale proceeds to pay off your reverse mortgage loan. Pay Off Your Reverse Mortgage If you want to stay in your home, you or an heir may decide to pay off the reverse mortgage by taking out a new loan or finding other financial resources. Deed-in-Lieu of Foreclosure To avoid foreclosure and eviction, you may decide to complete a Deed- in-Lieu of Foreclosure. This is a voluntary transfer of your property to the owner of your reverse mortgage in exchange for a release from your reverse mortgage obligations. Foreclosure If your loan goes into default, it may become due and payable and the servicer may begin foreclosure proceedings. A foreclosure is a legal process where the owner of your reverse mortgage obtains ownership of your property. Even if you’ve received a foreclosure notice, you may still be able to avoid foreclosure by pursuing one of the options noted above.
- 3. 3 of 5 Questions and Answers About Reverse Mortgages What is the definition of “primary residence?” For a reverse mortgage, the definition of your primary residence means: □□ You have not sold the property or conveyed title to the property. □□ All borrowers on the mortgage (if more than one) were not absent from the property due to physical and/or mental illness for more than 12 months. Remember, you must notify us of absences from the property in excess of two months to avoid determinations that you are not living in the home as your primary residence. What is the role of my reverse mortgage company/servicer? After the loan closes, as your reverse mortgage company (also referred to as your “servicer”), we will ask you to certify on an annual basis that you are living in the property and maintaining the property. Additionally, we may send you reminders to pay your property-related expenses — these are obligations like property taxes, insurance payments, and homeowner’s association fees (if applicable). However, these expenses are your responsibility so be sure you’ve set aside enough money to pay them on time. What if I don’t pay my property-related expenses or don’t maintain my home? Not meeting the conditions of your reverse mortgage puts the loan in default. This means the mortgage company can demand the note be paid in full and may be required to foreclose and sell the property. Will I have to repay the loan? As long as you live in the home as your primary residence, maintain the home, and pay property-related expenses, the loan does not have to be repaid. If you move or sell the property, the loan becomes due. In addition, when the last surviving borrower passes away, the loan also becomes due. Can I leave my home to my heirs? Yes. Your estate or designated heirs may be able to retain the property and satisfy the reverse mortgage debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the home.
- 4. 4 of 5 Questions and Answers About Reverse Mortgages Can I add a co-borrower? Reverse mortgages do not allow co-borrowers to be added to the note after loan origination. Contact us to discuss options such as refinancing to a new reverse mortgage (provided the borrower meets eligibility requirements). By refinancing, you get a new loan that could include your spouse or another co-borrower of your choosing. What if the sale of my home is not enough to cover the debt? As long as the property is sold for at least the lesser of the mortgage balance or 95% of the current appraised value, the Federal Housing Administration (FHA) which insures most reverse mortgages, will cover amounts owed that are not fully paid off by the sale. No debt is passed to the estate or heirs. Can my spouse or heirs contact a HUD-approved counseling agency or my mortgage servicer on my behalf? Yes, if you have signed a document authorizing them to do so. Where can I get help if I am struggling to pay my property-related expenses? If you are struggling to pay your property-related expenses (such as property taxes, insurance, and homeowner’s and/or condo association fees), contact us immediately. In addition, we strongly recommend and encourage you to work with a free HUD-approved housing counseling agency. We can provide you with their contact information when you call us. What if I am already in default? Even if you are in default, options may still be available. First, contact us to explain your situation. Depending on your circumstances, we may be able to help you with a repayment plan or other option. You can also contact a free HUD-approved housing counseling agency (see previous question) for assistance.
- 5. 5 of 5 Questions and Answers About Reverse Mortgages What if I’ve received a foreclosure notice? It still may not be too late. Contact us to find out your options. If you can’t pay off the reverse mortgage balance, you may be eligible for a Short Sale or Deed-in-Lieu of Foreclosure. Who should I contact if I suspect fraud? If you are contacted by anyone who is not your mortgage company offering to work on your behalf for a fee or claiming you qualify for a loan modification or some other solution, you can report the suspected fraud by calling: □□ U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General Hotline: 800-347-3735 or email: hotline@hudoig.gov □□ Federal Housing Finance Agency Office of the Inspector: 800-793-7724 or on the Internet at: www.fhfaoig.gov/ReportFraud What other trusted resources have information about reverse mortgages? □□ Fannie Mae’s Know Your Options™ website: www.KnowYourOptions.com/reverse □□ AARP’s website: www.AARP.org □□ HUD’s website: www.HUD.gov □□ Consumer Financial Protection Bureau’s website: www.ConsumerFinance.gov Know Your Options is a trademark of Fannie Mae.