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Reverse Mortgage

If you would like to tap into your homes equity for extra income for medical expenses, the increasing costs of living, or to more fully experience the joys of retirement, a reverse mortgage may be right for you. Our reverse mortgage specialists have the experience and expertise to help you gain the financial security you deserve.

Reviewing the following information will help you make informed decisions regarding your financial future:

 


Reverse Mortgage – Understanding the Basics

What makes it a "reverse" mortgage?

A reverse mortgage is exactly what its name implies — a loan whose features make it essentially the reverse of a traditional "forward" mortgage. Instead of making monthly payments, you can choose to receive them. That’s the “reverse” part of a reverse mortgage. Instead of turning your income into equity, you turn your equity into readily accessible funds.

That last feature — the ability to turn your equity into readily accessible funds — is what most distinguishes a reverse mortgage from other loans, and it's what can make it valuable to senior homeowners. Having spent years repaying the mortgage that allowed you to buy your home, you can now tap into that investment to help you achieve your goals later in life. However you plan to use your equity — whether paying medical expenses, improving your home, or just adding a bit of cushion to your monthly budget — you'll have a golden opportunity to put your nest egg to work for you.

What happens to my home?

You remain the owner for as long as you continue to live there, keep the taxes current and maintain the property to FHA standards.

Who is eligible?

To be eligible for a reverse mortgage, all owners listed on the home's title must be 62 years of age or better and occupy the home as their principal residence for the majority of the year. The property must be a single-family or a one-to-four unit, owner occupied dwelling. Townhomes, detached homes, condominium units, planned unit developments (PUDs), and some manufactured homes or new construction properties are eligible.

Speaking with a reverse mortgage counselor is another important eligibility requirement. The Department of Housing and Urban Development (HUD) supervises counseling agencies that can work with you in person or, more commonly, over the phone. Be aware that a fee may be charged for these services. Your People’s Bank reverse mortgage loan officer can provide you with a list of authorized counselors.

Contact a reverse mortgage loan officer to learn more or call us at 541.618.3320.


How A Reverse Mortgage Loan Works

Rising debt, falling equity

The monthly payments you made to pay off your original mortgage generally served a common purpose — to decrease your debt and increase your equity. The payments you receive with a reverse mortgage have exactly the opposite effect — they increase your debt and decrease your equity.

Usually, taking out a loan means you must commit to repay it using money that you will earn in the future — in other words, using money that isn't guaranteed.

When you take out a reverse mortgage, the loan is based on the equity you already have in your home.

You do not need to repay the loan as long as you or one of the borrowers continues to live in the house, keep the taxes and insurance current, and maintain the property to FHA standards. If you sell the home for more than the loan balance at that time, you or your heirs will keep the difference.

How much can I borrow?

The maximum loan amount for a reverse mortgage is based primarily on several factors: the age of the youngest borrower, the value and location of the home, and the current interest rate.

Contact a reverse mortgage loan officer to learn more or call us at 541.618.3320.


Important Considerations

What you will pay?

Besides interest, getting a reverse mortgage typically involves four types of fees:

  • An origination fee
  • Third-party closing costs
  • Mortgage insurance premiums
  • A monthly servicing fee

You can generally finance these costs as part of your loan by having them deducted from the loan proceeds. There is also a fee for the required HUD counseling service. This fee is paid up-front to the counseling agency and cannot be financed as part of the loan. Depending on the type of reverse mortgage you get, you may also have a choice of having the lender pay the fee or paying it as part of the loan proceeds.

Choosing your payment plan

Reverse mortgages are available with fixed-rate and variable-rate options. How you receive funds from your reverse mortgage depends on which rate option you select:

  • A fixed-rate reverse mortgage disburses funds in a lump sum to cover large expenses, such as paying off an existing mortgage or other debts.
  • A variable-rate reverse mortgage offers access to the highest allowed amount of equity, offers choices for an immediate advance of funds, and provides several disbursement options:
    • Monthly installments to supplement income for a predetermined period
    • As a line of credit to draw on as necessary
    • In a lump sum to meet large or immediate needs
    • A combination of these options
  • Borrowers can change their disbursement plans as many times as they wish.

Choosing your loan type

Whether you select a reverse mortgages with a fixed or variable interest rate depends on your disbursement preferences, as well as your sensitivity to interest-rate fluctuations:

  • A fixed-rate offers the stability and security of a consistent interest rate that isn’t subject to market fluctuations, but provides limited disbursement options
  • A variable-rate provides flexibility in choosing rate adjustments and pay-out options

You can also select a variable-rate option that adjusts on an annual or monthly basis:

  • Annual rate adjustments are usually capped at two points per year and five points over the life of the loan. On the other hand, they provide a lower maximum loan amount.
  • Monthly rate adjustments feature a larger maximum loan amount, but they usually have no annual adjustment cap, and instead are capped at ten points over the life of the loan.

If you choose to receive your reverse funds as monthly cash advances, note that these rate adjustments will not change the amount you receive each month. They only affect the amount of interest that is charged on the total loan balance.

Contact a reverse mortgage loan officer to learn more or call us at 541.618.3320.


Managing Your Equity -Spending Your Equity

You may already have plans for how you want to use your reverse mortgage proceeds. But it's wise to remember all the work that’s gone into building up those funds, and how important they are to your financial security — particularly if your home is your largest remaining financial asset.

Of course, there was a reason you sought a reverse mortgage in the first place. Whether it was to improve your home, supplement your income, or pay for medical expenses, the important thing is that you decided to use your equity to improve your lifestyle and stay in your home. As long as you manage your money wisely and keep your goals in mind, your reverse mortgage will help you do just that.

Estimating what will be left

How much of your home’s equity will be left after repaying the loan depends on many factors: the size and frequency of your loan advances, increases or decreases in your home’s value, future interest rates, and others. Because so many variables are involved, no estimate will be absolutely certain. But your People’s Bank reverse mortgage loan officer can help you estimate your leftover equity as accurately as possible, based on how and when you plan to use your loan proceeds.

Considering your heirs

Whether you tap into your home equity with a reverse mortgage or through some other financing program, the more of that equity you spend now, the less will be left for your heirs. That’s why it is important to think about how you want to involve your children or other loved ones in the process.

Often, the adult children of senior borrowers are happy to see their parents continue living in their homes, and relieved to know that they are financially secure.

Tax and public-benefit considerations

The IRS currently treats reverse mortgage proceeds as loan advances rather than as taxable income. You may encounter tax implications if you use the funds to purchase an annuity, however, so you should check with your tax advisor regarding your vulnerability.

Proceeds from a reverse mortgage will have no affect on Social Security or Medicare benefits because they are not need-based. Benefits such as SSI and Medicaid, however, may be affected if you carry any of your reverse funds over from one month to the next. You should check with your local benefits program administrator to find out if you are in danger of becoming ineligible.

Contact a reverse mortgage loan officer to learn more or call us at 541.618.3320.

If you still have questions about reverse mortgages, chances are you’ll find the answers here... 
 


Frequently Asked Questions

Would I meet the requirements for a reverse mortgage if I currently have an existing loan on my home?

  Yes, but the existing loan must be paid off prior to or at the settlement of the reverse mortgage.
 

My property is held in trust. Do I qualify?

  Yes, but you must be the primary Trustee and qualified by age.
 

To avoid probate, my children and I own the property in joint tenancy. Do we qualify?

  Yes, if the children are age 62 and older and live in the property. Otherwise, they would need to be taken off the title for you to participate.
 

Are mobile homes eligible?

  Yes. The home must have been built in 1977 or later and have a permanent foundation that is approved by FHA.
 

Are there restrictions on how I can use the money?

  Nope - it's your money.

 
Contact a reverse mortgage loan officer to learn more or call us at 541.618.3320.

For information about other loan programs available, contact a home lending officer (link to Contact Us Form) or call us at 541.618.3320.