Frequently Asked Questions

Reverse Mortgage FAQ - Frequently Asked Questions

Reverse mortgages are a widely unknown topic and have many myths surrounding them. Here at South River Mortgage we want you to know exactly what a reverse mortgage is and why you should or should not consider obtaining a reverse mortgage. Below is a list of frequently asked questions we hear from our customers on a day to day basis:

1. What is a Reverse Mortgage?
A Home Equity Conversion mortgage, or HECM, is a reverse mortgage federally created and insured program for homeowners over the age of 62 to access equity in their home. Unlike a conventional mortgage, there are no monthly mortgage payment*, or any payments at all. The balance of the loan is repaid when the home is sold or the owner of the home passes away.
If you have any other questions about what a reverse mortgage is please read our article explaining the topic in detail.

2. Will I still own my home?
Yes, the title of the home will remain in your name. This also means that you must continue to pay homeowners insurance, property taxes, and maintain the home.

3. If I already have a traditional mortgage, can I still receive a reverse mortgage?
Yes, a reverse mortgage will pay off your existing mortgage and you may still be eligible for cash out or line of credit options, depending on the balance of your traditional mortgage. Use our reverse mortgage calculator to calculate the proceeds you may be eligible for.

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4. Do I need a strong credit score to receive a reverse mortgage?
Currently, credit score is not a requirement for a reverse mortgage. Note: a credit score assessment will be utilized to ensure that the borrower can still maintain to pay the obligations of a reverse mortgage. These obligations are the continuation of paying property taxes, homeowners’ insurance, and maintaining the home.

5. Who is eligible for a Home Equity Conversion Mortgage (HECM)?
A borrower must be at least 62 years old or older, have a sufficient amount of equity in their home, and have the ability to meet the financial obligations of a HECM loan. Call us for reverse mortgage services and get help with your particular situation.

6. What types of homes are eligible?
All single-family homes, multi-family (up to 4 unit), and manufactured homes approved by FHA and HUD are eligible for a reverse mortgage. Condominiums are eligible if they are FHA-approved, but even if they are not approved they may be eligible for the FHA spot-approval.

Learn more: 
manufactured homes reverse mortgage
condominium reverse mortgage

7. Are there limits on how I can spend the money I receive?
First and foremost, the existing mortgage on the home (if there is one) will be paid off, but after that the funds are free to be used however the borrower desires.

8. What is the maximum amount I will be able to receive?
The maximum a borrower can receive is determined by many variables. These variables are generally the current appraised value, age of borrower, and interest rates at the time. All HECM loans are currently subject to the lending limit of $765,600, but there are many jumbo reverse mortgages that have a limit of up to $10M.

9. How long does the reverse mortgage application process take?
The reverse mortgage process takes approximately 30 days, but this can vary from person to person.

10. How many ways can I receive my money?
There are multiple ways to receive your reverse mortgage funds. You can either choose from a lump sum, line of credit, or monthly payment plan. Or you can combine any of the three options. There are many different payment plans with a reverse mortgage.

11. Will my children have to pay for the loan if I pass away?
There are options for the heirs of the home. The heirs can keep the home to which they either pay off the loan or 95 percent of the appraised home value: Which ever is less. Also, the heirs can sell the home, pay off the remainder of the loan and will receive the remaining balance from the sale of the home. The last option is for the heirs to walk away from the property completely and turn it over to the lender.

12. Is this kind of loan typically used as a “last resort” for seniors?
No, and the federal program was never intended as a last resort for seniors. The intent of a reverse mortgage is to access frozen equity and turn it into liquid cash. The funds aren’t required to be used for anything but the current loan on the home. Most often, the funds received from a reverse mortgage are used to create a more comfortable life for the borrower.

13. Who should get a reverse mortgage?
A reverse mortgage may not be the right choice for every homeowner. Reverse mortgages are not the best choice when in the market for a short-term loan. However, if the homeowner wants to maintain living in their home and are sick of payments for their house, a reverse mortgage can be the right choice. There are other reasons why a homeowner should receive a reverse mortgage.

14. Do I need to pay taxes on the funds I receive from a reverse mortgage?
No. The funds a borrower receives from a reverse mortgage are not considered “income earned”. This means that the funds are nontaxable.

15. Is it expensive?
A reverse mortgage requires no payments. However, there are still closing costs and interest, but the fees can be factored into the loan so the borrower will not have to pay these costs out of pocket. A reverse mortgage is not necessarily expensive.

16. If no monthly mortgage payment* are required, how is my reverse mortgage loan paid back?
A reverse mortgage is paid off when the home is either sold or the residents within the home pass away. When the owners pass away the home is then transferred to the heirs. The heirs can either sell the home or keep the home. The heirs will never be obligated to pay to balance of the loan.

17. Will Social Security or Medicare be affected?
Social Security and Medicare should not be affected by a reverse mortgage. Consult a financial advisor to see how a reverse mortgage will affect your benefits.

18. What is the Right of Rescission?
In short, the Right of Rescission allows the borrower to cancel the loan within three days after the closing of the loan. This applies mainly to HECM loans. If you have a different type of reverse mortgage the Right of Rescission may be different so please read the Right or Rescission portion of the loan contract thoroughly.

19. Can I make a partial prepayment to my reverse mortgage account?
In most reverse mortgages, the borrower is permitted to prepay their reverse mortgage account without any penalty. If you make payments on your reverse mortgage, the line of credit can be re-accessed and used again as a revolving line of credit.

20. What are the benefits of a reverse mortgage?
A reverse mortgage lets you use the value of your home to provide a source of income while allowing you to stay in the home. It may be an effective way to benefit from the money you’ve invested in your home over many years.

21. What happens if I don’t pay my property-related expenses or don’t maintain my home?
Not meeting the conditions of your reverse mortgage may put your loan in default. This means the mortgage company can demand the reverse mortgage balance be paid in full. However, there are many options for those who cannot pay their property charges.

22. What happens if I use all my equity?
Reverse mortgages are paid by the value of the home, so the borrower will not have to make any payments even if they use all of the available equity. Because the loans are insured by HUD, even if all of the equity is used, the homeowner can continue to live in the home.

23. Can I end up owing any money to the reverse mortgage lender?
No. HECM loans have no personal liability for the payment of the debt. The only way a lender can enforce the debt is through the sale of the home. HECM loans are non-recourse loans which means the lender cannot charge the homeowner if the loan is foreclosed.

24. Do I need to be in good health in order qualify for a reverse mortgage?
Good health is not a requirement of a reverse mortgage. A borrower can receive a reverse mortgage with their current state of health or with any preexisting conditions, as long as the borrowers health does not affect their ability to maintain the loan obligations.

25. Do banks offer reverse mortgages?

Most banks don’t offer reverse mortgages now. However, some banks still offer some banks mortgage products. FHA approved Banks or Federally Insured Depository Institutions sometimes offer reverse mortgage products. Learn more about the banks that offer reverse mortgages.  

We hope it cleared up all the questions you had about reverse mortgages. If you have any other questions, read the other articles on our website or give us a call at (884) 230-6679.

* borrower still must pay property taxes and homeowner’s insurance as with any mortgage loan

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