If you’ve been considering a reverse mortgage, read on to find out if American Advisors Group’s loan is right for you.
We can’t predict what will happen to us as we age. Americans are living longer than ever, and sometimes we simply outlast our retirement fund planning. Or, a sudden death of a spouse may leave a widow without another option. Either way, realizing that you may need help to stay in your home can be daunting and overwhelming.
The first reverse mortgage was issued in 1961 to help keep a widow in her home. Recently, reverse mortgages have become an increasingly common way to provide an alternative type of funding for seniors.
What is a Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners over the age of 62 to convert their home equity into cash while continuing to live in their home. There are no monthly payments with a reverse mortgage; however, this is a loan, and it must be repaid in full should the homeowner die or choose to no longer use the home as their primary residence. Homeowners will still be required to pay property taxes and insurance.
There are three types of reverse mortgage loans: a single purpose reverse mortgage, a proprietary reverse mortgage and a Home Equity Conversion Mortgage (HECM). AAG’s loan is an HECM. This is the only type of reverse mortgage that is HUD-approved and insured by the federal government, making it a sound choice for some seniors. A reverse mortgage can be complicated, so it is important to understand the details before committing.
Qualifications for a reverse mortgage
- You must be age 62 or older
- You must own your home outright or have most of your existing mortgage paid off
- You must be on the title of the home
- The property must be your primary residence; it cannot be a vacation home
- You must be financially capable of maintaining the home, including paying property taxes and insurance
- The home must be one of the following types of residences: a single family home, a 2-4 unit home with one unit occupied by the owner, a HUD-approved condo or a manufactured home that meets FHA requirements
- You must complete an information session by a HUD-approved counselor
Know the fees and costs
AAG tells its consumers that some of the typical fees associated with a reverse mortgage may be waived or might not be mandatory. But the costs that you will likely incur include:
- Loan origination fee
- FHA Mortgage Insurance Premiums (MIP)
- Counseling fee
- Appraisal fee
- Credit report
- Title insurance
- Inspection fees
- Flood certification fee
- Recording fees
Many homeowners looking to take advantage of a reverse mortgage won’t have the money to cover these upfront costs. But just like with a traditional mortgage, these fees can be rolled into the total amount of the loan.
As with any loan, your reverse mortgage will be charged interest. Interest rates are determined individually based on your particular situation. Your exact interest rate will be based on whether it is fixed or variable, as well as an index plus a margin. As its name suggests, with a fixed rate your interest rate will not change over time. But a variable rate will change with the index rate.
How will I receive my money from the reverse mortgage?
How you receive the proceeds from your reverse mortgage depends on the terms of your loan. If your loan is a Home Equity Conversion Mortgage (HECM) — the only type of reverse mortgage insured by the federal government, and the type offered by AAG — your options include:
- Lump sum
- Line of credit
- Monthly installments
It is important to note that during the first year you can only access 60% of the loan amount, or the amount needed to pay off your current mortgage plus 10%. And once you receive the funds, you must immediately pay off your current mortgage if you do not own your home outright.
During the life of the reverse mortgage borrowers must:
- Immediately pay off your current mortgage if you do not own your home outright
- Continue to pay insurance and property taxes
- Maintain the home as your primary residence
A reverse mortgage loan is due when any of the following occur:
- The owner passes away
- The owner sells the home or transfers it to someone else
- The owner no longer uses the home as their primary residence
- The owner lives elsewhere for more than 12 consecutive months
- The owner does not pay the home’s insurance or taxes
- The owner does not live up to the terms of the reverse mortgage
Once any of these occurrences takes place, the reverse mortgage loan is due in full. Typically, the home is sold and the proceeds are used to satisfy the loan. If after repaying the reverse mortgage there are any remaining proceeds from the sale of the house, they money is paid to the borrower or his or her heirs. Because a reverse mortgage is a non-recourse loan, no other assets other than the home may be used to repay the loan. This is a beneficial feature should the proceeds of the sale of the home not be enough to cover the loan’s balance.
What should I look out for?
Interest: A reverse mortgage is charged monthly interest, causing the amount you owe to grow over time.
Deductions: You are not able to deduct the interest on your tax return until the loan is paid off.
Reduced inheritance: Most reverse mortgages are repaid by selling the home and using the proceeds to satisfy the loan. This eliminates the option of leaving the home to your heirs. Your heirs would have to pay off the reverse mortgage if they wish to keep the home.
Reverse mortgage process with AAG
Step 1: Call AAG to learn more about a reverse mortgage to help you determine if this type of loan is right for you.
Step 2: Complete the HUD-required reverse mortgage counseling.
Step 3: Complete the loan application. An AAG professional can guide you through the application and answer any questions that arise.
Step 4: AAG will schedule an appraisal of your property to determine the value of your home. This will be added to your application and submitted for review.
Step 5: A closing agent will contact you to sign all closing documents and answer any additional questions.
Who is American Advisors Group?
AAG is the largest, most trusted reverse mortgage lender in the U.S., offering loans to customers in every state except Massachusetts and Pennsylvania. AAG received an A+ review from the Better Business Bureau and has a 96% customer satisfaction rating from its customers. Read our comprehensive review on American Advisors Group to learn more about the lender.
Frequently asked questions
What can I use the funds for?
There are no limitations. You may use the money for anything you choose.
Can I change my mind after I close the loan?
Yes, but you will need to do so within 3 days. You may cancel the loan after 3 days but you will be required to pay back any funds you have received, in addition to accrued interest.
Does a reverse mortgage affect my government assistance?
A reverse mortgage will NOT affect your Medicare or Social Security benefits. However, the funds you receive from your reverse mortgage can affect your eligibility for Medicaid and Supplemental Security Income. The money you receive from the reverse mortgage could push you over the maximum amount of liquid assets allowed to qualify for Medicaid or Supplemental Security Income.
What happens if the proceeds from the sale of my home are not enough to cover the reverse mortgage loan? Will my heirs be responsible for the remaining debt?
No. A reverse mortgage is a non-recourse loan. This means that the proceeds from the sale of your home are the ONLY assets that may be used to repay the reverse mortgage. Your heirs are NOT liable.
How much money can I borrow with a reverse mortgage?
FHA limits the amount to $625,500. The amount you can borrow is determined by the age of the borrower, the current interest rate and the appraised value of the home. But the loan cannot exceed $625,500.