Does reverse mortgage affect Social Security?
Since many retirees rely on Social Security benefits for income, borrowers may worry reverse mortgage payments will jeopardize those funds. The good news is that reverse mortgage proceeds do not impact social security benefits.
Typically, the money you get through the reverse mortgage is tax-free and won't affect your Social Security or Medicare benefits.
A reverse mortgage isn't free money: The borrowing costs can be high, and you'll still need to pay for homeowners insurance and property taxes. Reverse mortgages can also complicate life for your heirs, especially if they don't want the home or the home's value isn't enough to cover what's owed.
No, reverse mortgage payments aren't taxable. Reverse mortgage payments are considered loan proceeds and not income. The lender pays you, the borrower, loan proceeds (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home.
There are no credit score or income requirements for a reverse mortgage, and they can be a great way for seniors to access much-needed funds if they find themselves struggling at that time of life.
Taking a loan too early
The earliest a homeowner is eligible to take out a reverse mortgage is age 62, but Orman considers it risky to do so. "If you tap all your home equity through a reverse at 62 and then at 72 you realize you can't really afford the home, you will have to sell the home," she said.
Reverse mortgages are ideal for retirees who don't have a lot of cash savings or investments but do have a lot of wealth built up in their homes. A reverse mortgage allows you to turn an otherwise illiquid asset into cash that you can use to cover expenses in retirement.
Borrowers Couldn't Meet Their Loan Obligations
With a reverse mortgage, a borrower is no longer required to make monthly mortgage payments. They are, however, still responsible for paying their property taxes, mortgage insurance, and any other home-related expenses, like HOA dues.
Reverse mortgages have extremely high fees compared with other options and are usually a bad idea for most people. They are an especially bad idea for anyone with a family home that they want to leave to their heirs.
Technically speaking a Reverse Mortgage is guaranteed by HUD/FHA until age 150 of the youngest Borrower. But because that number is still so far above current life expectancy the real answer is that a Reverse Mortgage will last as long as you need it to.
What happens when you run out of money in a reverse mortgage?
If borrowers run out of available funds, they can stay in the house, provided they continue to live in and maintain it and stay current on required taxes and insurance. In this sense, they will not have outlived the mortgage, but they will have outlived their ability to borrow more money from it.
How Much Can You Receive with a Reverse Mortgage? The money you can receive from a reverse mortgage generally ranges from 40-60% of your home's appraised value. The older you are, the more you can receive, as loan amounts are based primarily on your life expectancy and current interest rates.
| Updated: February 9, 2024 | HECM Fixed Rate | HECM Adjustable Rate (Annual) |
|---|---|---|
| Current Rates | 7.56% - 7.93% | 6.76% - 7.51% |
| APR | 8.996% - 9.427%* | N/A |
| Index | N/A | 4.76% |
| Margin | N/A | 2.00 - 2.75 |
No. When you take out a reverse mortgage loan, the title to your home remains with you. This webpage has information about HECMs, which are the most common type of reverse mortgage. Most reverse mortgages are Home Equity Conversion Mortgages (HECMs).
| Age of Borrower | Principal Limit Factor | Current Lending Limit |
|---|---|---|
| 65 | 37.8% | $1,149,825 |
| 70 | 41.5% | $1,149,825 |
| 75 | 44.3% | $1,149,825 |
| 80 | 48.8% | $1,149,825 |
Walk Away. You can walk away from a reverse mortgage as a last resort. Handing over the deed to the lender will release you from your loan, but you will also lose your house.
Overall, Suze's opinion on reverse mortgages is that they should be a last resort for older Americans who need extra income. She recommends exploring other options first, such as downsizing to a smaller home or taking out a home equity line of credit.
One out of every ten reverse mortgage is in default and could face foreclosure. Reverse mortgages are expensive.
You generally aren't eligible for a reverse mortgage until you reach age 62, and the older you are after that, the more you're often able to borrow.
Therefore, the answer is yes: a borrower can sell a home with a reverse mortgage at any time they choose, just like a traditional mortgage. When a borrower sells their home, they must repay the reverse mortgage loan balance and their lender will close their account. Borrowers then keep the remaining equity.
Does AARP endorse reverse mortgages?
AARP has supported reverse mortgage products to help older Americans withdraw their home equity in retirement. While the organization does not offer reverse mortgages, it offers helpful information on this type of loan if you seek more information from an independent third party.
The homeowner continues to bear all the responsibilities of a homeowner, including making repairs and paying taxes and insurance. In a reverse mortgage, there is no regulatory requirement for an escrow account for payment of taxes and insurance.
Because they often involve high fees—and the interest accrues on an increasing loan balance—reverse mortgages are an expensive way to borrow money. These added costs can cut into your home equity and reduce your family's inheritance when you die.
| Counseling Agency | Next Availability | Phone |
|---|---|---|
| Hanco*ck Community Development, Inc | 24-48 Hrs. | 877-284-4326 |
| Money Management International (MMI) | 48-72 Hrs. | 877-908-2227 |
| GreenPath Financial Wellness | 1 Week | 888-860-4167 |
| Hope Inc. | 1 Week | 844-432-6467 |
People are afraid of what they don't understand. They know what a 30-year fixed mortgage is, and they understand monthly mortgage payments. When they think reverse mortgages, all they see is their loan balance going up. It's counter-intuitive, so it can be difficult to comprehend.
