Reverse mortgages can be an option for older homeowners who want to receive regular income without leaving their home. Most homeowners in State College and across Pennsylvania have questions about reverse mortgages, so we sat down with mortgage broker D. Shane Whitteker to get an expert’s answers. Whitteker is the owner and chief broker at State College-based Principle Home Mortgage.

Question: What is a reverse mortgage?
Principle Home Mortgage:Pennsylvania homeowners who are age 62 or older, who are currently living in the home can consider a reverse mortgage to assist with their financial needs. A reverse mortgage program enables the homeowner to withdraw a portion of the home’s equity, either on a monthly basis, or one-time lump sum. Through this program it allows seniors who are cash poor but have equity in their home to continue to live comfortably in retirement.

Q: How do you pay back a reverse mortgage?
PHM: Typically a reverse mortgage is repaid upon the death of the last borrower, or eligible non-borrowing spouse. They can become due before this time for various reasons including absence for a majority of the year for a non-medically related issue, absence from the home for more than 12 consecutive months for a medically related issue, or failure to pay taxes, insurance, or make needed repairs. The reverse mortgage is paid upon the sale or refinance of the home.

Q: How does a reverse mortgage work?
PHM: Reverse mortgages allow a homeowner age 62 or older, who either owns their home or has paid-down a considerable amount on the home, to continue to occupy the home as their principal residence and receive money to stipend their income. As long as the homeowner lives in the property, they may either receive monthly payments from the bank or a lump-sum with no payments due until the property is unoccupied, or the homeowner passes away. Other factors such as timely payment of taxes, insurance, and upkeep are required. Upon the sale of the home, whether to another party or family member, the reverse mortgage will be satisfied with the sale or refinance funds.

Q: What are the pros of a reverse mortgage?
PHM: There are several potential advantages of a reverse mortgage, including:

  • Assistance in financial stability for retirement, whether through monthly payments to you, or a lump-sum.
  • Generally, the money received from a reverse mortgage is tax-free.
  • Funds to provide for in-home long-term care.
  • There are no restrictions on how the funds need to be used.

Q: What are the cons of a reverse mortgage?
PHM: There are some potential drawbacks of a reverse mortgage. Among these include:

  • The amount you owe increases over time as interest accumulates.
  • If unforeseen hardships keep the home unoccupied for more than a year, the mortgage becomes due.
  • The fees associated with obtaining a reverse mortgage can be higher than the costs of refinancing, but they can be financed by the reverse mortgage so nothing is due out-of-pocket for the transaction.
  • If inheritance is a concern, there will be less to inherit from the home’s value as the reverse mortgage increased the amount owed on the property. Heirs can keep the home if they choose to refinance the home instead of selling.

Q: How do you get out of a reverse mortgage?
PHM: Simply put, through the sale or refinance of the home. If a borrower chooses to end the terms of the reverse mortgage, the mortgage amount would be due. The borrower, or their heirs if they have passed away, may opt to sell the home to satisfy the reverse mortgage, or they may refinance the home under their own name and repay the reverse mortgage with a new forward mortgage.

Q: How much money do you get from a reverse mortgage?
PHM: The amount the borrower receives from a reverse mortgage depends on several factors, including:

  • The youngest borrower’s age or the age of eligible non-borrowing spouse (must be over 62)
  • The current interest rate

Q: How long do reverse mortgage payments last?
PHM: The life of the payments of a reverse mortgage depend on the loan product that you and your mortgage broker decide is the best product for your needs. Speak with your mortgage broker for more information on available loan products.

Q: Can you sell your house if you have a reverse mortgage?
PHM: Absolutely, you can sell your home if you have a reverse mortgage! The sale of the home would end the reverse mortgage, and the lending bank would be paid back with the proceeds.

Q: Do you have to make payments on a reverse mortgage?
PHM: There are no payments on a reverse mortgage. All principle and interest of the loan is negatively amortized into the total loan amount.

Q: How can I know if it’s worth it for me to do a reverse mortgage?
PHM: While there are many factors to consider before deciding whether a reverse mortgage is the right financial option for you, a great place to start is a conversation with a mortgage broker. A mortgage broker can discuss program eligibility, requirements, and implications of a reverse mortgage. They will aid you in making an independent, informed decision as to whether the product will meet your family’s specific needs.

Q: I didn’t buy my house with FHA mortgage insurance - can I apply for a reverse mortgage?
PHM: A reverse mortgage is an entirely new mortgage against the home and property. Whether or not the home was previously financed with FHA mortgage insurance does not matter. As long as the interested borrower and home meets the guidelines, a reverse mortgage can obtained on any property.

Q: What’s the difference between a reverse mortgage and a home equity loan?
PHM: One of the key differences between a reverse mortgage and a home equity loan is that a home equity loan is a lump-sum that requires repayment begin immediately. A reverse mortgage allows the borrower to put off repayment of the loan until later in life, or upon death, as long as the loan conditions are met.

Q: How can I learn more about my reverse mortgage options?
PHM: To learn more about reverse mortgage options, contact Shane at Principle Home Mortgage. As an independent mortgage broker, Shane assists interested borrowers and their families in making informed decisions. While banks may only offer one option for a reverse mortgage, a mortgage broker works with many banks and acts as a personal shopper with your interests and needs in mind.