I pride myself on staying in touch with my reverse mortgage clients.   Even years after the loan has closed, clients have ongoing questions and I am always available for them.  They often comment that it is so refreshing to call the same phone number knowing I will be there!

My clients also send their friends to me for information.  I started writing down some of the questions I get.  Because of the declining values we have been experiencing, a lot of questions revolve around equity and how values impact the reverse mortgage.

So here are some typical questions (with my answers) that my clients and prospective clients have been asking:

Q:  I am 69 yrs. old and behind in my mortgage payments. My loan balance is higher than the value of my home.  My son is telling me to do a short sale. I don't want to move. Would a reverse mortgage help me? Help!

A:  Using reverse mortgage proceeds to "settle" with a lender is becoming more and more common. Rather than a short "sale" it is a short "refinance".  The lender has to be willing to accept less than the amount owed.  But in many cases, it is to the lenders advantage to take the settlement rather than incur the costs of foreclosing on the home.  If they are willing to do this, you will no longer have any mortgage payments at all.  It can be a win-win.

Q:  My mother is 72 and has an Option Arm loan that is resetting soon.  She will not be able to afford the payments.  Can a reverse mortgage help her?

A:  Paying off existing mortgages, especially risky adjustable loans, is one of the very best uses for a reverse mortgage. Your Mom's loan balance and home value are two variables used to calculate how much reverse mortgage money she can get.  If the loan balance is not too high and there is still some equity in the home, a reverse mortgage may be the solution.

Q:  I have had a reverse mortgage for two years and love not making a house payment anymore.  However, my home is too big for me and I am considering selling it.  Will I be able to get another reverse mortgage on my next house?

A: If the figures make sense, you are absolutely entitled to another reverse mortgage. Very soon there will be a reverse mortgage that can actually be used to purchase a home.  It is part of the FHA Modernization Bill which we expect to pass any time now.

Q:  My value has decreased dramatically.  How will that impact the reverse mortgage I took out last year?

A:  It will not affect your reverse mortgage one iota.  The terms that you entered into when you signed your loan documents are in force and nothing can change them.  Even if you were to lose ALL equity, you can remain in your home the rest of your life and never have to make a payment to the lender.

Q:  We are having a tough time making our mortgage payments, but I was told that we could not qualify for a reverse mortgage because our mortgage balance is too high.  Is there anything we can do?

A:  You may be in a situation that we call "short to close", meaning that the reverse mortgage proceeds are not enough to cover your existing mortgage balance.  If that is the case, we need to determine how "short" you are. If you have funds in another account like a retirement account or a CD, you could use those funds to pay the shortfall and eliminate your mortgage.  Another solution is to see if one of your adult children has any equity in their home and can take out an equity line of credit to help you make up the difference.  Then you would make the payment for your son or daughter.  That payment would be substantially less than the mortgage payment you are making now.

Q:  I have a line of credit with my reverse mortgage that is guaranteed to grow each year.  Now that values have fallen, will that line of credit be reduced?

A.  No, again you have a contract that states the amount of your line of credit and the growth rate attributed to it.  Even if your home value falls below your line of credit, you are guaranteed the line of credit amount plus growth.  Smart borrowers took out their reverse mortgages when they had lots of equity and have essentially "locked" in their equity with a reverse mortgage.

Q:  I keep hearing that "County lending limits" are going up.  What does that mean for me with a reverse mortgage?

A:  FHA HECMs (Home Equity Conversion Mortgage) limit the amount considered for a reverse mortgage based on the FHA County Lending limits, which vary by county.  Currently the highest anywhere is $362,790.  The FHA Modernization Bill will raise limits, possibly to one national standard of $417,000.  What that means for new reverse mortgage borrowers is that if their home is valued above the current limit in their county, the ceiling is raised on the limit for them, freeing up more equity to borrow.  For existing reverse mortgage borrowers, it means that they could possibly refinance their reverse mortgage to access more equity.

Q:  I have been thinking about a reverse mortgage, but now that my home value is less, won't I get a lot less money on the reverse?

A.  The amount of equity you are eligible for is based on a calculation that includes the age of the younger borrower (if there are two borrowers), current interest rates (based on the 10 yr. T Bill plus a margin) and the value of the home or the county lending limit, whichever is lower. Because values are down, yes, you are right - you will have access to less equity.  But does that mean you should wait?  It depends.... how badly do you need the money now?  What are you using it for?  How old are you and how important is it to use the funds for a better quality of life now?  Only you can make that decision.  However, if you do choose to get a reverse mortgage now, it is possible that as your home value increases, you will be able to refinance your reverse mortgage into another reverse mortgage and access more equity down the road.

Q:  I already have a reverse mortgage, which I used to pay off my forward mortgage.  I also set up a small line of credit but it is now depleted.  I need more money.  Can I refinance my reverse mortgage?

A:  That depends on the value of your home and how big your reverse mortgage loan balance is that must be paid off.  If your home value has flattened or fallen since you took out the reverse, it is possible that you simply don't have enough equity to refinance.  You may have to wait a year or two.  Check with a good reverse mortgage consultant to see if refinancing makes sense for you.

Q:  I have had my reverse mortgage for 3 years now, but I have no equity in my home.  Will I lose my home?

A:  No way! The FHA insures reverse mortgages.  Your home is yours until you leave it permanently, even if you are "upside down", meaning you owe more than the home is worth.  When you finally leave the home, the FHA insurance will pay the difference if the value is less than the loan balance.

Q:  How will my heirs pay back the reverse mortgage?

A:  When the last borrower either moves out or "moves up" (dies), the loan is due.  Your heirs have some choices.  They can sell the home and pay the reverse loan balance out of the proceeds.  Any remaining equity is theirs.  Or, if they want to keep the home, they can secure regular financing and pay off the loan.  In the event that the loan balance is higher than the value of the home, the heirs can simply walk away and let the FHA and lender take care of it.  All reverse mortgages are non-recourse loans which means that only the value of the home can be used to satisfy the loan. If the loan balance is more than the home is worth, and even if your heirs had millions in the bank, they will never be asked to pay back the lender. 

Q:  How long will my kids have to settle the loan when I am gone?

A:  Most lenders will work with your heirs and give them up to one year to sell the home.  The lender does not want to take the home back. 

Q:  When we took out our reverse mortgage, we weren't too concerned about leaving the home to our daughter.  But now, circumstances have changed and our daughter lives with us.  She is going to want to keep the home, but the loan balance is growing bigger and bigger.  She is making good money now, but what if she is not working and cannot refinance the home when we die? What can we do?

A: First off, a lot of things can change between now and the time you leave the home permanently. Your daughter may be in a different "place" in life entirely.  However, if you want to limit the growth of the reverse mortgage balance, and your daughter has income, why not have her pay the interest on the loan each month?  That would be like her buying the house now.  It is perfectly OK to pay down a reverse mortgage.

Q; I was told that I am stuck in my home when I take out a reverse mortgage and that I cannot sell it.  Is that true?

A:  Nothing could be farther from the truth!  You have total control over your home and you retain title.  You can sell anytime you wish.  However, when you do sell, the loan balance must be paid back, usually from the sale proceeds.  Any remaining equity is yours to keep.  This is no different than if you had a forward mortgage and sold your home. 

Q: I am getting a monthly payment from my reverse mortgage.  If my equity runs out, will the payment stop?

A: No, it will not stop, even if you have zero equity in your home.  The monthly payment, called tenure, is a lifetime guaranteed monthly payment. It is one of the payment options of a reverse mortgage. You will receive it as long as you live in your home.

Q:  What if I take out a reverse mortgage now and need my equity in future years?

A:   This is not a simple question to answer without knowing all of your circumstances.  However, you must weigh the benefit to you now versus possible future benefits.  What do you need the money for now?  If you are experiencing hardship and stress, the equity could be used now to ease your life.  Also, ask yourself, what could I possibly need the equity for in the future?  Is it to buy another home?  If so, you might want to consider moving now.  Is it to pay for long-term care?  If so, the only way to tap into your equity would be to sell your home.  How much would you get on the sale?  Would it be enough to pay for assisted living?  In most situations there simply isn't enough equity available to sustain a long-term care event.  So, you would probably go on Medicaid.  But, before doing that, you would have to "spend-down" your assets including your home equity (if you are single).  So by "holding onto" your equity, what have you gained?  Again, this requires very careful analysis of YOUR situation. 

Q:  I want to take all of my reverse mortgage proceeds as a lump sum and put it in the bank.  I have been advised not to do that.  But why?

A:  The reason this is not a good financial move is that once you draw out all proceeds, interest starts accruing on the balance.  Unless you can put that money where it earns more than the interest charged on it, it does not make good financial sense.  You have the option of leaving it on a line of credit with the lender and drawing from it any time you need it.  And, the balance on the line of credit grows bigger over time. 

Q:  I have been approached by an insurance agent who is trying to sell me an annuity.  I have approximately $90,000 coming to me from my reverse mortgage (after paying off a small mortgage I took out to refinance several years ago). He says that I will make more money by investing the $90,000 into an annuity.  I am 83 years old.

A:  RUN!!!  Do NOT under any circumstances use your reverse mortgage proceeds to purchase any investment, especially an annuity, without solid, impartial, unbiased financial advice.  This insurance salesman is going to make a BIG commission on selling you the annuity.  You do NOT need an annuity at your age.  Your money will be tied up for years and years.  What if you need it?  The whole point of doing the reverse mortgage was to secure some funds for a "rainy day".  Please do not even consider this.  If you need monthly cash flow, look into structuring you reverse mortgage so that it pays you a monthly income. 

Q:  Aren't reverse mortgages extremely expensive?

A:  I would ask you "compared to what?"  Selling your home is expensive also.  Making house payments is expensive.  Yes, the upfront closing fees can run $15,000 to $16,000, but a good portion of those fees pays for the FHA mortgage insurance premium.  If you were to remove that part, the remaining cost is not too different than regular loan refinance costs.

Q:  Reverse mortgages sound too good to be true.  Is there a catch?

A:   No catch.  They truly are a wonderful financial tool in the right circumstances.  However, they are not appropriate for everyone and you need to do your homework before getting one.