"I've heard lots of stories about seniors whose lives have truly been changed by reverse mortgages. Get the facts you need to make a smart decision about whether a reverse mortgage is right for you. For homeowners aged 62 and older, reverse mortgages provide a safe way to tap into home equity to pay for what you want or need—without giving up your home. Tens of thousands of seniors enjoy the benefits of this important financial tool".- James Garner

MyBLACKJACKET.COM is a company that specializes in reverse mortgages. The primary purpose of this web page is to provide you with the information needed to make an informed decision about reverse mortgage financing of your home.

We work specifically with Seniors, to find them the home loan that works for their home and optimizes their cash flow, retirement, tax and other financial strategies. Call us today to learn more at (949) 481-9026

A New Kind of Loan In Reverse

A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:

• all at once, in a single lump sum of cash;
• as a regular monthly cash advance;
• as a "creditline" account that lets you decide when and how much of your available cash is paid to you; or
• as a combination of these payment methods.

No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home, have equity and be 62 years of age or older.

A Reverse Mortgage Compared to Most Other Loans

To qualify for most loans, the lender checks your income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. So you don't need a minimum amount of income to qualify for a reverse mortgage. You could have no income and still be able to get a reverse mortgage.

With most home loans, you could lose your home if you don't make your monthly payments. But with a reverse mortgage, there aren't any monthly repayments to make. So you can't lose your home by not making them. Most reverse mortgages require no payment for as long as you — or any eligible CO-owner(s) — live in the home. So they differ from other home loans in these important ways:

• you don't need income to qualify for a reverse mortgage;
• you don't have to make monthly payments on a reverse mortgage; and
• you don't need good credit.

"Forward" Mortgages

You can see how a reverse mortgage works by comparing it to a "forward" mortgage — the kind you use to buy a home. Both types of mortgages create debt against your home. And both affect how much equity or ownership value you have in your home. But they do so in opposite ways.

"Debt" is the amount of money you owe a lender. It includes cash advances made to you or for your benefit, plus interest. "Home equity" means the value of your home (what it would sell for) minus any debt against it. For example, if your home is worth $150,000 and you still owe $30,000 on your mortgage, your home equity is $120,000.

Falling Debt, Rising Equity

When you purchased your home, you probably made a small down payment and borrowed the rest of the money you needed to buy it. Then you paid back your traditional "forward" mortgage loan every month over many years. During that time:

• your debt decreased; and
• your home equity increased.

As you made each repayment, the amount you owed (your debt or "loan balance") grew smaller. But your ownership value (your "equity") grew larger. If you eventually made a final mortgage payment, you then owed nothing, and your home equity equaled the value of your home. In short, your forward mortgage was a "falling debt, rising equity" type of deal.

Rising Debt, Falling Equity

Reverse mortgages have a different purpose than forward mortgages do. With a forward mortgage, you use your income to repay debt, and this builds up equity in your home. But with a reverse mortgage, you are taking the equity out in cash. So with a reverse mortgage:

• your debt increases; and
• your home equity decreases.

It's just the opposite, or reverse, of a forward mortgage. With a reverse mortgage, the lender sends you cash, and you make no repayments. So the amount you owe (your debt) gets larger as you get more and more cash and more interest is added to your loan balance. As your debt grows, your equity shrinks, unless your home's value is growing at a high rate.

When a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. If you have the loan for a long time, or if your home's value decreases, there may not be any equity left at the end of the loan, but the lender takes that risk, not you.

In short, a reverse mortgage is a "rising debt, falling equity" type of deal. But that is exactly what informed reverse mortgage borrowers want: to "spend down" their home equity while they live in their homes, without having to make monthly loan repayments. There's more about this important concept in an article called "A 'Rising Debt' Loan" in the Basics section of this site.

Reverse Mortgages: Get the Facts Before Cashing in on Your Home's Equity

Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to reverse mortgages. They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

In a regular mortgage, you make monthly payments to the lender. But in a reverse mortgage, you receive money from the lender and generally don't have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.

To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.

Three Types of Reverse Mortgages

The three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.

HECMs and proprietary reverse mortgages tend to be more costly than other home loans. The up-front costs can be high, so they are generally most expensive if you stay in your home for just a short time. They are widely available, have no income or medical requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. The counselor must explain the loan's costs, financial implications, and alternatives. For example, counselors should tell you about government or nonprofit programs for which you may qualify, and any single-purpose or proprietary reverse mortgages available in your area.

The amount of money you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, current interest rates, and where you live. In general, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

The HECM gives you choices in how the loan is paid to you. You can select fixed monthly cash advances for a specific period or for as long as you live in your home. Or you can opt for a line of credit, which allows you to draw on the loan proceeds at any time in amounts that you choose.You also can get a combination of monthly payments plus a line of credit.

HECMs generally provide larger loan advances at a lower total cost compared with proprietary loans. But owners of higher-valued homes may get bigger loan advances from a proprietary reverse mortgage. That is, if you have a higher appraised value without a large mortgage, then you may likely qualify for greater funds. Location (for example, your neighborhood) is only one part of the determination of appraised value.

Reverse Mortgage Loan Features

Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.
As you consider a reverse mortgage, be aware that:

• Lenders generally charge origination fees and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender generally sets these fees and costs.
• The amount you owe on a reverse mortgage generally grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases over time as loan funds are advanced to you and interest accrues on the loan.
• Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to a financial index and will likely change according to market conditions.
• Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets for you and your heirs. A nonrecourse clause, found in most reverse mortgages, prevents either you or your estate from owing more than the value of your home when the loan is repaid.
• Because you retain title to your home, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. So, for example, if you don't pay property taxes or maintain homeowner's insurance, you risk the loan becoming due and payable.
• Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.

Getting a Good Deal
on a Reverse Mortgage

If you are considering a reverse mortgage, shop around to compare your options and the offered terms. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. It will help you ask more informed questions, which could lead to a better deal.

• If you want to make a home repair or improvement or need help paying your property taxes, you may want to find out if you qualify for any low-cost single-purpose loans that may be available in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call toll-free, 1-800-677-1116. Ask the AAA for information about available loan programs for home repairs or improvements, or property tax deferral or property tax postponement programs.
• If you are interested in a federally-insured HECM, know that all HECM lenders must follow HUD rules, and that many of the loan costs including the interest rate will be the same no matter which lender you select. Still, some costs including the origination fee, other closing costs, and servicing fees may vary among lenders.
• If you live in a higher-valued home, you may be able to borrow more from a proprietary reverse mortgage. But it generally will cost more. The best way to see key differences between a HECM and a proprietary loan is with a detailed side-by-side comparison of future costs and benefits. Many HECM counselors and lenders can provide you with this important information.
• No matter which type of reverse mortgage you are considering, be certain you understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates, which show the projected annual average cost of a reverse mortgage, including all itemized costs.

Be a Savvy Reverse Mortgage Consumer

Be cautious if anyone tries to sell you something, like an annuity, and suggests that a reverse mortgage would be an easy way to pay for it. If you don't fully understand what they're selling, or you're not sure you need what they're selling, be even more skeptical.

Keep in mind that your total cost would be the cost of what they're selling plus the cost of the reverse mortgage. If you think you need what they're selling, shop around before you buy.

No matter why you decide to take a reverse mortgage, you generally have at least three business days after signing the loan documents to cancel it for any reason without penalty. Remember that you must cancel in writing. The lender must return any money you have paid so far for the financing.

Top Ten Things to Know
if You're Interested in a Reverse Mortgage

Reverse Mortgages are becoming popular in America. The US Department of Housing and Urban Development (HUD) created one of the first. HUD's Reverse Mortgage is a federally-insured private loan, and it's a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more. You can receive free information about reverse mortgages by calling AARP at: 1-800-209-8085, toll-free. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. HUD's reverse mortgage provides these benefits, and it is federally-insured as well.

2. 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.

3. Can I apply if I didn't buy my present house with FHA mortgage insurance?

Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new HUD reverse mortgage will be a new FHA-insured mortgage loan.

4. What types of homes are eligible?

Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.

5. What's the difference between a reverse mortgage and a bank home equity loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

6. Can the lender take my home away if I outlive the loan?

No! You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.

7. Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs.

8. How much money can I get from my home?

The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

9. 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.

10. How do I receive my 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.

PRESS RELEASE October 29, 2007

EQUITY DIDN'T GO UP IN FLAMES!
This last week we suffered some devastating loses in Southern California because of the wildfires. Just think if you had an 86 year-old loved one, retired, living alone, in bad health whose sole asset was his home and he was told to evacuate to a nursing home for his safety.

Also imagine that in order to enjoy what years he had left to live, that his home was his only asset, what a terrible tragedy it would be if he lost his home to fire or the ability to tap his equity for an emergency loan.

This was the scenario that happened last week to one of our senior clients in Vista, California. Because we had just completed the process of obtaining a Reverse Mortgage for this client and it had funded on Tuesday, October 23rd, this client had the bulk of his equity in the form of cash in the bank instead of tied up in his home. With medical bills to be paid, caregivers to be paid, how fortunate we were to have planned this financial transaction ahead of an emergency.

It is extremely difficult on our seniors when they don't have any living children or a spouse to help them with these kinds of decisions, but together with his caregivers, we were able to put together a plan months ago to convert his equity into cash for medical care expenses and emergencies. When we started this process, a fire was the furthest thing on our mind, but his financial well being had to be managed just in case some extraordinary event did happen and it did.

He didn't loose his home to the fire, he was able to return home from the nursing home but now he has the financial security he deserves after years of hard work. We at MyBlackJacket.com are proud that the trust was there to let us help him through this potential tragedy. Right now, lenders are not funding loans until they can verify that their Collateral is still there, but this client needed funds for his current health care needs and can't afford to have his finances tied up because of a fire.

MyBLACKJACKET.COM based in Orange County and owner, Ernie Casarez of Ladera Ranch are in the business of helping clients diversify their finances, including their home equity to make sure there is a safety net for emergencies

FREQUENTLY ASKED QUESTIONS
ABOUT A REVERSE MORTGAGE (FAQ'S)

What's a reverse mortgage?
How's it different?
Who can get one?
How much cash can you get?
How's it paid to you?
How much total cash?
What happens to your debt?
That why it's called "reverse"?
When do you pay it back?
What do you owe?
What's the most you can owe?
How do you pay it?
What's left?
What's the out-of-pocket cost?
What are the other costs?
What's the total cost?
How does the total cost vary?
What's that mean?
What's it worth?
What about public benefits?
What about taxes?
What about "borrowing"?
What about "spending"?
What about "investing"?
How should you shop?
Where should you look?
What should you ask?

How does a Reverse Mortgage differ from a home equity loan?

Who is eligible for a Reverse Mortgage?

What are the minimum and maximum amounts that I can borrow?

What types of payment plans are available with the Reverse Mortgage loan?

How will the amount of the monthly payment be calculated?

Will Reverse Mortgage payments affect my Social Security, Medicare, or other programs?

Will I have to pay any fees to obtain a Reverse Mortgage?

Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?

Will my Heirs owe anything to the mortgage lender if I die?

If my home appreciates in value during the mortgage term, who will be entitled to that money?

What if I decide to sell my home?

Can I sell my home to my children and continue to live in it?

What is Fannie Mae's role in the Reverse Mortgage program?

What locations are you licensed in?

A. We are licensed in California.

Back to List of Questions about Reverse Mortgages

Q. How does a Reverse Mortgage differ from a home equity loan?

A. While both Reverse Mortgages and home equity loans enable you to turn the equity in your home into spendable dollars, there are important differences between the two types of mortgages. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is originated. To qualify for such a loan, you must earn a monthly income great enough to make those payments. If you fail to make the monthly payments, the mortgage lender can foreclose on you, and you can be forced to sell your home. In addition, you may be required to re-qualify for a home equity loan each year. If you do not re-qualify, the lender may require you to pay the loan in full immediately. With a Reverse Mortgage, you do not repay the loan as long as your home remains the principal residence, your income is not considered when qualifying you for the loan, and there is no requirement that you re-qualify each year.


Back to List of Questions about Reverse Mortgagees

Q. Who is eligible for a Reverse Mortgage?

A. You, and any co-borrowers, must be at least 62 years old and either own your home free and clear or have an outstanding mortgage balance that can be paid off at loan closing using the reverse mortgage loan proceeds or combination of reverse mortgage loan proceeds and additional borrower funds at closing. Your home most be a single-family or two- to four-unit dwelling. Condominiums maybe eligible if they are in FHA-approved developments or can become approved. You also must agree to accept mortgage counseling from a HUD-approved counseling agency. Family members also are strongly encouraged to attend these counseling sessions.

Back to List of Questions about Reverse Mortgages

Q. What are the minimum and maximum amounts that I can borrow?

A. The maximum amount you can borrow is based on a HUD formula that factors in the age of the youngest borrower, the interest rate, and the maximum claim amount. The maximum claim amount is the lesser of the appraised value of your house or the maximum principal amount for a one family residence that can be insured by FHA in your area. The maximum mortgage amount insured by FHA varies by geographic area and changes frequently.

Please request a "FREE ANALYSIS" in order to determine want loan amounts you are eligible for based on your individual circumstances.

Back to List of Questions about Reverse Mortgages

Q. What types of payment plans are available with the Reverse Mortgage loan?

A. A borrower with a Reverse Mortgage may choose among five payment options: Term, tenure, modified term, modified tenure, and line of credit.

Under the Term option, you may receive equal monthly payments for a fixed period of time selected by you.

Under the Tenure option, you may receive equal monthly payments for as long as you occupy the home as a principal residence.

Under the Line Of Credit option, you may draw up to a maximum amount of cash at times and in the amounts of your choosing, as you occupy the home as a principal residence.

Under the Modified Tenure plan allows you to set aside a portion of loan proceeds as a line of credit and receive the rest in the form of equal monthly payments as long as you occupy your home as a principal residence.

The Modified Term plan allows you to set aside a portion of loan proceeds as a line of credit and receive the balance as equal monthly payments for a fixed time period as specified by you.

If you select either of the term plans, you can remain in your home after the end of the loan term without starting repayment. The same is true if you have withdrawn the maximum amount under a line of credit or tenure payment plan. Remember, repayment of a Reverse Mortgage does not begin until you no longer occupy your home as your principal residence.

Back to List of Questions about Reverse Mortgages

Q. How will the amount of the monthly payment be calculated?

A. How much you can receive in monthly payments on the age of the youngest borrower, the interest rate, the maximum claim amount, and the length of time that you will be receiving payments--for a fixed period or for as long as you live in the house. The older you are the larger your payments are likely to be.

Back to List of Questions about Reverse Mortgages

Q. Will Reverse Mortgage payments affect my Social Security, Medicare, Supplement Security Income (SSI), or Medical benefits?

A. Reverse Mortgage payments do not affect your Social Security or Medicare benefits because those benefits are not based on the assets of the recipient.

However, in the Federal Supplement Security Income Program beneficiaries must keep their liquid resources under certain limits. If you do not spend Reverse Mortgage advances in the month received, then such funds are considered part of your liquid resources and may adversely affect your eligibility for SSI. Therefore, a Reverse Mortgage borrower who also receives SSI should never draw more money than actually need to spend that month.

Regulations for state-administrated programs such as Medicaid, AFDC, Food Stamps, and for state-funded welfare programs (such as state supplements to SSI) all have different eligibility requirements. Therefore, we suggest that you consult a benefits specialist at your local Area Agency on Aging or the local offices for these programs to determine how Reverse Mortgage payments may affect your particular situation.

Back to List of Questions about Reverse Mortgages

Q. Will I have to pay any fees to obtain a Reverse Mortgage?

A. Yes, you will have to pay an origination fee, other closing costs, and a mortgage insurance premium, which is divided into two parts: an upfront premium of two percent of the maximum claim amount, and annual, ongoing fee of half percent on your mortgage balance. You may be able to finance the origination fee, other closing costs, and the upfront two percent mortgage insurance premium--that is, these items may be included in your loan balance so you do not have to pay for them in cash. In addition to the yearly insurance premium, a servicing fee is charged to your loan balance each month.

Back to List of Questions about Reverse Mortgages

Q. Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?

A. Absolutely not, as long as you continue to occupy the property as a principal residence. You can not be forced to sell or vacate the property, even if the total of the mortgage payments to you plus interest and mortgage insurance premiums exceeds the value of the property or if the fixed term over which you received your payments has expired. No deficiency judgment may result from your Reverse Mortgage loan. FHA insurance covers any further financial obligation to the lender.

Back to List of Questions about Reverse Mortgages

Q. Will my Heirs owe anything to the mortgage lender if I die?

A. Upon your death, the loan balance, consisting of payments made to you on your behalf plus accrued interest, becomes due and payable. Your heirs may repay the loan by selling the home or by paying off the Reverse Mortgage loan so that they may keep the home. If the loan exceeds the value of your property, your heirs will owe no more then the value of the property. FHA insurance will cover any balance due to the lender. No additional financial claims may be made against your heirs or estate.

Back to List of Questions about Reverse Mortgages

Q. If my home appreciates in value during the mortgage term, who will be entitled to that money?

A. Under a Reverse Mortgage you are legally required to pay back to the lender only the outstanding balance. Any money remaining after the mortgage is paid goes to you or, upon your death, to your heirs.

Back to List of Questions about Reverse Mortgages

Q. What if I decide to sell my home?

A. If you choose to sell your home, the outstanding loan balance becomes due and payable to the mortgage lender. You or your estate will receive any proceeds exceeding the loan balance.

Back to List of Questions about Reverse Mortgages

Q. Can I sell my home to my children and continue to live in it?

A. If you sell your home to your children or any other individual, the loan balance will be due and payable at settlement. After the loan is repaid, any arrangements for your continued occupancy of the property must be made with the new owners.

Back to List of Questions about Reverse Mortgages

Q. What is Fannie Mae's role in the Reverse Mortgage program?

A. Fannie Mae has agreed to purchase two types of adjustable-rate HECM loans from the lenders who originated them. One adjustable-rate mortgage (ARM) plan features annual interest rate adjustments with a two percent cap on the amount that the interest may change at each adjustment and a five percent cap on increases or decreases over the life of the loan. The other ARM plan features monthly interest rate changes and limits interest rate increase to a ten percent over the life of the loan.

Back to List of Questions about Reverse Mortgages

What's a reverse mortgage?

A loan against your home that requires no repayment for as long as you live there.  

 How's it different?

• To qualify for most loans, the lender checks your income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. So your income generally has nothing to do with getting the loan or the amount of the loan.

• With most home loans, if you fail to make your monthly repayments, you could lose your home. But with a reverse mortgage, you don't have any monthly repayments to make. So you can't lose your home by failing to make them.

Back to Top

Who can get one?

• You must own your home, and generally all of the owners must be at least 62 years old.

• Your home generally must be your "principal residence" - which means you must live in it more than half the year.

• For the federally-insured "Home Equity Conversion Mortgage" (HECM), your home must be a single-family property, a 2-4 unit building, or a federally-approved condominium or planned unit development (PUD). For Fannie Mae's "HomeKeeper" mortgage, it must be a single family home, PUD, or condominium.

• Reverse mortgage programs generally do not lend on cooperative apartments or mobile homes, although some "manufactured" homes may qualify if they are built on a permanent foundation, classed and taxed as real estate, and meet other requirements.

• If you have any debt against your home, you must either pay it off before getting a reverse mortgage or - this is what most borrowers do - use an immediate cash advance from the reverse mortgage to pay it off. If you don't pay off the debt beforehand, or do not qualify for a large enough immediate cash advance to do so, you cannot get a reverse mortgage.

Back to Top

How much cash can you get?

The amount of cash you can get from a reverse mortgage depends on the program you select and - within each program - on your age, home, and interest rates.

• It can vary by a lot from one program to another. A typical consumer might get $30,000 more from one program than from another. But no single program works best for everyone.

• For all but the most expensive homes, the federally-insured "Home Equity Conversion Mortgage" (HECM) generally provide the most cash.

• Within each program, the amount of cash you can get depends on the age(s) of the owner(s), the value (and in some cases the location) of the home, and current interest rates. In general, the most cash goes to the oldest borrowers living in the homes of greatest value at a time when interest rates are low. On the other hand, the least cash generally goes to the youngest borrowers living in the homes of lowest value at a time when interest rates are high.

But remember, the total amount of cash you actually end up getting from a reverse mortgage will depend on how it's paid to you plus other factors.   

Back to Top

How's it paid to you?

That's up to you. You could take it

• as an immediate cash advance at closing, that is, a lump sum of cash paid to you on the first day of the loan

• a creditline account that lets you take cash advances whenever you choose during the life of the loan - until you use it all up

• OR as a monthly cash advance
  
  • for a specific number of years that you select, 
    
  • OR for as long as you live in your home,
  • OR - if you use the loan to buy an annuity - for the rest of your life, no matter where you live
    
• OR as any combination of immediate cash advance, creditline account,  and monthly cash  advance

Use our Calculator to estimate how much cash you could get from a reverse mortgage.

Back to Top

How much total cash?

• If you take a creditline account, the total amount of cash you actually get will depend on two things: how much of your available creditline you use, and whether the creditline is "flat" or "growing."

• With a flat creditline, the amount of remaining available credit at any time only changes if you take a cash advance, at which point it decreases by the amount of the advance. For example, if you have a flat $50,000 creditline and take out $10,000, you would have $40,000 left whenever you decided to take more.

• But with a growing creditline, your remaining available credit grows larger by a given rate. For example, if you took $10,000 from a $50,000 creditline that grows by 8% each year, and then came back for more three years later, there would then be over $50,000 left to use - because the remaining $40,000 growing at 8% per year would become $50,388 after three years.

• So a growing creditline can give you a lot more cash over time than a flat one. That’s why you need to look at more than the size of a credit-line when a reverse mortgage starts. You also should consider how much available credit would be left in the future. This will also depend, of course, on how much you take out and when you take it.

• The creditline in the Home Equity Conversion Mortgage (HECM) program grows larger each month by the same rate as the one being charged on the loan balance. It keeps growing for as long as there is any credit left, that is, until you withdraw all your remaining credit.

• Fannie Mae's HomeKeeper creditline is flat. The remaining available credit does not increase. 

• Our Calculator shows you the initial annual rate at which HECM creditlines are currently scheduled to grow. It also shows you how much available credit would be left after 5 and 10 years if you you didn't draw any prior to then.

• If you take monthly loan advances, the total amount of cash you actually get will depend on whether you select a plan that sends them to you for a specific number of years, or for as long as you live in your home. It will also depend how long you actually live in your home.

• If you use a reverse mortgage to buy an annuity, the total amount of cash you actually get will depend on how long you live - no matter where you live. The net value of that cash to you, however, may depend on other factors (see "What About Public Benefits?" below and "ALERT: Annuities").

Back to Top

What happens to your debt?

It grows larger and larger as you keep getting cash advances, make no repayment, and interest is added to the amount you owe (your "loan balance").

That's why reverse mortgage are called "rising debt, falling equity" loans. As the amount you owe (your debt) grows larger, your equity (that is, your home's value minus any debt against it) generally gets smaller.  

Back to Top

That why it's called "reverse"?

• Yes. In a "forward" mortgage (the kind you normally use to buy a home), your regular monthly repayments make your debt go down over time until you have it all paid off. Meanwhile, your equity is rising as you owe less and less, and as your property value grows (appreciates). So forward mortgages are "falling debt, rising equity" loans - just the opposite of reverse mortgages.

• Here's another way to think of it. In a forward mortgage, you use debt to turn your income into equity. In a reverse mortgage, you use debt to turn your equity into income. You are reversing the deal you used to buy your home. Then, you had income and wanted equity. Now, you have equity and want income. In both cases you use debt to turn what you have into what you want.

Back to Top

When do you pay it back?

• When the last surviving borrower dies, sells the home, or permanently moves away. "Permanently" generally means you have not lived in your home for 12 months in a row.

• You might also have to pay it back if you fail to pay your property taxes, fail to keep up your homeowner's insurance, or let your home go to waste. But if you do, the lender may be able to make extra cash advances to cover these expenses.
  

Just remember, reverse mortgage borrowers are still homeowners and therefore are still responsible for taxes, insurance, and upkeep.    

Back to Top

What do you owe?

The total amount you will owe at the end of the loan (your "loan balance") equals

• all the cash advances you've received (including any that were used to pay loan fees or costs)

• plus all the interest on them -

• up to the loan's "nonrecourse" limit (see answer to next question).

Interest rates can change based on changes in published indexes. But the more adjustable they are, the lower they start – so they give you larger cash advances. And they will be lower than less adjustable rates all during the time that index rate changes don’t exceed the caps on the less adjustable rates.

Back to Top

What's the most you can owe?

You can never owe more than the value of the home at the time the loan is repaid. Reverse mortgages are generally "nonrecourse" loans, which means that in seeking repayment the lender does not have recourse to anything other than your home. Not your income, your other assets, or your heirs.

So even if you receive monthly loan advances until you are aged 115, your home declines in value between now and then, and the total of monthly advances becomes greater than your home's value - you can still never owe more than the value of your home. If you or your heirs sell your home in order to pay off the loan, the debt is generally limited by the net proceeds from the sale of your home.

Back to Top

How do you pay it?

• If you sell and move, you would most likely pay back the loan from the money you get from selling your home. But you could pay it back from other funds if you had them.

• If the loan ends due to the death of the last surviving borrower, the loan must be repaid before the home's title can be transferred to the borrower's heirs. The heirs could repay the loan by selling the home, using other funds from the borrower's estate or their own funds, or by taking out a new forward mortgage against the home.

Back to Top

What's left?

Not all reverse mortgage borrowers end up living in their homes for the rest of their lives. Some who expect to remain living there change their minds. Others face later health problems that require a move.

So it makes sense to plan for the possibility that you may sell and move some day. How much equity would be left if you did?

• If, at the end of the loan, your loan balance is less than the value of your home (or your net sale proceeds if you sell), then you or your heirs get to keep the difference. The lender does not "get" the house. The lender gets paid the amount you owe, and you or your heirs keep the rest.

• IMPORTANT: If you take the loan as a creditline account, be sure to withdraw all remaining available credit before the loan ends. You will have the money sooner that way, and it could be more than otherwise might be left. For example, a growing creditline could become greater than the leftover equity in some cases.

• If you have purchased an annuity and then sell your home, you could continue receiving monthly annuity advances for the rest of your life. If the loan ends due to the death of the last surviving borrower, and if the annuity purchased by the borrower includes a death benefit or "period certain" payments, then the annuity's beneficiaries would receive additional cash.

Back to Top

The out-of-pocket cash cost to you is most often limited to an application fee that covers a property appraisal (to see how much your home is worth) and a minimal credit check (to see if you are delinquent on any federally-insured loans).

Most of the other costs can be "financed" with the loan. This means that you can use reverse mortgage funds advanced to you at closing to pay the costs due at that time, and later advances to pay any ongoing costs. The advances are added to your loan balance, and become part of what you owe - and pay interest on.

If a lender charges an origination fee that is greater than the amount that can be financed with the loan, you have to pay the difference in cash at closing.

Back to Top

What are the other costs?

• The specific cost items vary from one program to another.  Many of them are of the same type found on "forward" mortgages: interest charges, origination fees, and whatever third-party closing costs (title search & insurance, surveys, inspections, recording fees, mortgage taxes) are required in your area. Other types of costs can be more exotic, and unique to reverse mortgages: monthly servicing fees, "equity-sharing" fees, "shared appreciation" fees, "maturity" fees.

• Although total loan costs between the HECM and HomeKeeper programs can vary enormously, many of the individual cost items within each program do not vary from one lender to another. Within each program, the costs that may be different from one lender to another are generally the origination fee and the servicing fee. So if you've decided on HECM you want to get the best deal, these are the specific fees to compare.

• The largest total cost differences you will find are the ones between different programs, for example, between the HECM and HomeKeeper programs. But it is virtually impossible to evaluate or compare the true, total cost of reverse mortgages unless you consider their Total Annual Loan Cost (TALC) rates.

Back to Top

What's the total cost?

Federal Truth-in-Lending law requires reverse mortgage lenders to disclose the projected annual average cost of these loans in a way that includes ALL of the costs and benefits, and also takes into account the nonrecourse limits.

This Total Annual Loan Cost (TALC) disclosure shows you what the single all-inclusive interest rate would be if the lender could only charge interest and not charge any other fees. Specifically, it tells you the annual average rate that would produce the total amount owed at various future points if only that rate were charged on all the cash advances you get that are not used to pay loan costs. In other words, it shows you what you are paying in total for the money you get to spend.

Back to Top

On any given loan, TALC rates depend on two major factors: time and appreciation.

• TALC rates are generally greatest in the early years of the loan and decrease over time, for two reasons 1) the initial fees and costs become a smaller part of the total amount owed, and 2) the likelihood increases that the rising loan balance will catch up to - and then be limited by - the nonrecourse limit.

• TALC rates also depend on changes in a home's value over time. The less appreciation, the greater the likelihood will be that a rising loan balance will catch up to  - and then be limited - by the home's value. On the other hand, when a home appreciates at a robust rate, the loan balance may never catch up to (and be limited by) it. 

Back to Top

• unlike APRs, TALC rates include all the costs

• unlike APRs, TALC rates do not assume you take all of the loan on the first day (if they did, TALC rates would be much closer to APRs)

It's also important to remember that you get benefits from a reverse mortgages that you don't get from a "forward" mortgage:

• no monthly repayments, and no repayment of any kind for as long as you live in your home

• an open-ended monthly income guarantee, or a guaranteed creditline (which may grow larger until you use it all)

• a total debt limit equal to the net value of your home  (even if it's less than what your loan balance would otherwise have been), no matter how long you live, and no matter what happens to the value of your home

So you may pay more for a reverse mortgage. But the benefits are not available on any other type of debt. And - if you live long, or if your property value doesn't grow much - you can end up with a lower than expected cost.

If you are considering a creditline, however, you need to know that official TALC disclosures do not account for the added value of growing creditlines. If you are a couple, you need to know that official TALC disclosures are all based on the life expectancy of single owners. The total cost rates generated by NCHEC's Calculator correct these shortcomings.

One more key point: lenders don't have to show you TALC rates on a loan until after you apply for it. So if you want to see and compare true, total costs before you apply, be sure to deal with Sources that can meet your information needs. Ask them for a Personal Reverse Mortgage Analysis showing you all your choices - including TALC rate comparisons generated by NCHEC software.

Back to Top

What's it worth?

Only you can decide what a reverse mortgage is worth to you. It probably depends most on what you would use one for: increasing your monthly income, having a cash reserve (creditline account) for irregular or unexpected expenses, paying off debt that requires monthly repayments, repairing or improving your home, getting the services you need to remain independent, or generally improving the quality of your life.

It may be helpful in evaluating the worth of a reverse mortgage to consider a major alternative: selling your home and moving. Do you have any idea

• how much money you could get by selling your home?

• what it would cost to buy & maintain or rent a new one?

• how much you could safely earn on sale proceeds not used for a new home?

NCHEC's Personal Reverse Mortgage Analysis estimates how much cash you could spend on housing each month using proceeds from the sale of your home. So look into other housing options. Seeing your housing alternatives first-hand and in-person may help you decide about a reverse mortgage. 

• You may find a different home, neighborhood, or community with an array of services or amenities that is much more attractive than you would expect to find.

• Or, you may only confirm what you were pretty sure of all along: that where you live now is easily the best place for you to be.

Either way, looking will give you a much better idea of the overall costs and benefits of staying versus moving.That will give you a better sense of what's valuable to you. And make it easier to evaluate the cost of a reverse mortgage.

Also take a look at other financial and services options that you may prefer to - or combine with - a reverse mortgage.

Back to Top

What about public benefits?

Social Security and Medicare benefits are not affected by reverse mortgages. But Supplemental Security Income (SSI) and Medicaid are different. In general, these programs count loan advances differently than annuity advances.

• Loan advances generally do not affect your benefits if you spend them during the calendar month in which you get them. But if you keep an advance past the end of the calendar month (in a checking or savings account, for example), then it will count as a "liquid asset." If your total liquid assets at the end of any month are greater than $2,000 for a single person or $3,000 for a couple, you could lose your eligibility.

• Annuity advances reduce SSI benefits dollar-for-dollar, and can make you ineligible for Medicaid. So if you are considering an annuity, and if you are now receiving - or expect someday you may qualify for - SSI or Medicaid, check with the SSI, Medicaid, and other program offices in your community. Get specific details on how annuity income would affect these benefits.

Back to Top

What about taxes?

An American Bar Association guide to reverse mortgages advises that generally

• the IRS does not consider loan advances to be income
  
• annuity advances may be partially taxable
  
• interest charged is not deductible until it is actually paid, that is, at the end of the loan.

Back to Top

What about "borrowing"?

Many of us have been well served by these borrowing cautions:

• don't borrow in general
• don't borrow against your home in particular

• "Don't Borrow" Borrowing usually means using money you haven't earned yet. You borrow today in the hope that you will be able to earn enough in the future to repay it. So you are borrowing against your uncertain future earnings - which sounds like "counting your chickens before they hatch." That's generally not a good idea unless you have a steady job and good prospects.

But this caution doesn't really apply to reverse mortgages because you are not borrowing against future income. In fact, you are borrowing against home equity that you have already earned. So you aren't counting your chickens before they hatch. You are hatching the nest egg you've already earned.

• "Not Against Your Home" Borrowing against your home usually means paying back a loan every month. But if you lose your job or your income drops, you could miss some payments and lose your home to foreclosure. That's why it's generally not a good idea to borrow against your home unless it's for a very basic purpose. You want avoid jeopardizing your home ownership.

But this caution doesn't apply to reverse mortgages either, because no monthly repayment is required. You can't lose your home by missing a payment because there are none to make.

Back to Top

What about "spending"?

Many of us have also been well served by these spending cautions: "You don't know how much you will need and how long you will live. So don't spend your savings. Wait till you really need them."

Makes a lot of sense. But - if you literally followed these cautions forever, you would never use any of the money you spend a lifetime building up. And that doesn't make much sense. Why go to the trouble of earning it and saving it if you're never going to use any of it? So in retirement, this spending caution should be amended:

• when should you consider using how much savings?

• which savings (for example, home equity)?

As amended, this caution clearly does apply to reverse mortgages. Because the more home equity "savings" you use now, the less you'll have later. So the questions now become:

• If you ever do take a reverse mortgage, should you do it now or wait until later to decide? (In the future, you may be eligible for more cash because you will be older and your home may be worth more. On the other hand, interest rates may be higher, and that would decrease the amount otherwise available.)

• If you take one now, how should you take it: creditline, monthly, or a combination? If you take a creditline, how much of it should you use now versus later? If you take a monthly advance, should you select a specific number of years, for as long as you live in your home, or should you buy an annuity providing lifetime advances no matter where you live?

A lot might depend on how much cash you'd qualify for today. Click Calculator for an estimate.

Back to Top

What about "investing"?

Should you take a lump sum of cash from a reverse mortgage and invest it someplace? Except for purchasing a sound annuity, that's generally a lousy idea - unless, of course, you can afford to lose money.

Remember, to come out ahead on any investment, you'd have to earn a greater rate of return on it than the TALC rate you are paying on the reverse mortgage. And the odds against doing that safely are mighty long.

A much better alternative is to take a HECM creditline. You only get charged interest on the cash advances you've actually taken, and the remaining available credit grows larger every month. And this growth is not an "interest" earning, so you are not taxed on it.

How much could you get in a HECM creditline, and by what rate would it begin growing? Click Calculator for an estimate.

Back to Top

How should you shop?

First, take a look a look at the Alerts to make sure you realize how important it is to be careful. Then try the Calculator to find out how much cash you could get and what it would cost. If the numbers interest you, click Guidance to learn how to get a free Personal Reverse Mortgage Analysis from selected Sources. Also investigate important related alternatives or supplements to reverse mortgages. 

Back to Top

What should you ask?

Ask selected Sources for an individually-customized, 12-page "Personal Reverse Mortgage Analysis." Read it carefully, and ask questions about it. But don't stop there.

Click Software to see all the additional information NCHEC's "Reverse Mortgage Counselor" software can generate for you. Ask the "what-if" questions it can answer in detail. For example:

• If your are interested in a growing creditline:
  "If I took out this much cash now and that much cash then (tell them how much and when), how much cash would remain available to me at various future times, and how would that compare with the remaining cash in a flat creditline?"

• If you want to see how total loan costs compare:
  "Can you show me a chart that graphs
  the TALC rates on these loans?

• If you want to see how your debt and equity
  would change over time:
  "Can you show me a chart that graphs my future debt and leftover equity on a specific loan?"

  "What would I owe and how much equity would I have left if I sold and moved at various future times?

  "How would those figures change if you assume the value of my home grows at the average annual appreciation rate for my state over the past year, past five years, or since 1980?" (Or any other rate you choose.)

• If you are a single male or a couple:
  "TALC rates assume all borrowers are single females. What would the rates be if they were based on the life expectancy of a single male my age (or of a couple our ages)?"

• If you are interested in monthly advances:
  "TALC rates do not take into account the value of an annuity beyond the end of a loan. What would the rates be if they did?"

Answers to these types of questions may be very helpful to you. And they might be vitally important to you and your pocketbook. NCHEC's software can easily answer these types of questions. Ask away!

Back to Top

Reverse Mortgage Success Stories

Poor health should not mean losing your home…
In early May, 2006, a BCI Originator received a phone call from the daughter of an 85 year old lady with serious health problems. The bank was threatening to foreclose on the mother’s property which was located in East Haven, CT. We discussed the possibility of a Reverse Mortgage and it appeared that it was one of the few avenues this person had to remain in her home.

The application was taken on a Wednesday and on that Friday; a local sheriff placed a “notice of foreclosure auction” sign on the front lawn. The sign had an auction date on Saturday, two weeks hence. The daughter placed a frantic phone call to me to see if there was anything I could do.

I spoke with and wrote letters to the bank and their attorney requesting that they delay their foreclosure proceeding to allow for processing of the Reverse Mortgage since there would be sufficient funds to pay them in full. They agreed to a one month extension based on the information provided.

The loan processing went smoothly, the bank was paid out and there were additional funds available to pay other bills that were in arrears. Without the availability of our Reverse Mortgage program, there would have been little alternative other than selling the home. The customer and her daughter were delighted with the outcome.

.

BCI helps people to avert foreclosure…
Another BCI loan originator had a customer who had paid off two (2) mortgages that were costing him $1,600.00 per month. We saved his property for him because he was in foreclosure and paid off some back taxes and he now had that $1600.00 for other expenses and to help him to enjoy a stress free life.


A customer, DF, wrote to us and ‘He said taking out a Reverse Mortgage pulled him out of a big hole he was in. With his proceeds BCI paid off his mortgage and $36,000.00 in back taxes. He also was able to buy his wife a new car and still has a line of credit available to him.

Sometimes a Reverse Mortgage just helps people to live more comfortably…
BMO of Mystic CT wrote: My husband and I, with the help of our son, looked into a Reverse Mortgage because of our financial needs. The cost of living was going up while our retirement funds were going down, and it was getting harder to make ends meet. The application process went very smoothly. All of the details of the Reverse Mortgage were clearly explained, and any questions we had were thoroughly answered. We are very happy with our decision to get a Reverse Mortgage.

A physical handicap does not mean you have to move out of your home...
My parents have lived in their home for 51 years. Even though their house is not suitable for my father’s physical needs, there is no other place they could ever call home. So my siblings and I were faced with the challenge of allowing them the dignity of staying in their home while addressing their increasing physical needs. We saw an ad for reverse mortgages, and did some research. We were relieved to find out that a reverse mortgage was the perfect answer to our problem. From the money they were able to receive, a new handicapped-accessible shower and a chair lift to the second floor were installed. They also chose to receive a monthly check to help with their prescription expenses. My parents feel proud that they could “do it on their own”, and not burden their children.

A sudden loss of income does not have to end in disaster...
My in-laws sold their mortgage-free home and built their dream home just 4 years ago. They are truly happy here and since my father in-law planned to work for at least 7 more years, they were comfortable with the fact that they had a small mortgage. Then the company he worked for closed its doors and everyone was laid off. Finding a job at 63 proved to be difficult. Now they are faced with the financial burdens of monthly health insurance and mortgage payments in addition to their other monthly bills & taxes. They were so distraught, they considered selling the property. This broke my heart. They worked all their lives; they deserved to be happy in their dream home. Since they already had equity in their new home, my husband & I looked into the benefits of a reverse mortgage. This product is exactly what they needed. They were able to pay off the balance of their mortgage with the reverse mortgage and still had money left to receive a check each month which helps with the health insurance payments. So instead of making monthly payments, they are now receiving them! It is so comforting to see them enjoy their home without the financial worries they once had.

A tragic illness made easier to bear...
My single Aunt Linda is 71, and very proud of her cottage-like home where she lives alone. Recently she was diagnosed with terminal colon cancer; she was given 6 months to one year to live. She desperately wanted to spend whatever time she had left in the comforts of the home she worked for and loved. Her social security and pension would not be enough to provide the round-the-clock care that she needed. A home equity loan didn&';t make sense, since there would be monthly payments to make. As her power-of-attorney, I helped arrange a reverse mortgage for her with an optimistic 2 year term which provides her with all the money she needs each month to pay for her in-home health care. We are hoping that, by some miracle, she is still with us when the term of her reverse mortgage runs out because we learned that she could still live there, her home will not be taken away from her. Now she receives a large check each month which makes it possible for her to stay in the home she loves.

Call for more information and answers..