If you’re thinking about taking out a reverse mortgage but aren’t quite sure if it’s a safe bet, check out these frequently asked questions and answers.

What is a Reverse Mortgage?

A reverse mortgage-sometimes called a HECM or Home Equity Conversion Mortgage-is a loan that allows you to take out the money you’ve already invested in your home. This way you can access the money you’ve paid to live in your home and built up as equity.

How Old Must You be to Qualify for a Reverse Mortgage?

The youngest person on the application must be 62 years of age or older.

What if Your Son or Daughter Lives With You? Will That Affect Your Eligibility?

No. Only the ages of those who are applicants on the mortgage matter. Younger persons may live with you as long as their names are not on the reverse mortgage.

How Much Money Can You Get From a Reverse Mortgage?

The amount of money available will depend on the following factors: the value of your home (recent appraisal), the age of the youngest person applying for the reverse mortgage, and the interest rates currently available. This amount is called your “maximum claim amount”, and it is the maximum amount the reverse mortgage can be approved for. To get approximate quotes as to how much money you could be eligible for under a reverse mortgage, use this reverse mortgage calculator. You can also use this more detailed reverse mortgage calculator for comparison estimates. Keep in mind these numbers are estimates; you will need to speak with lenders to get actual quotes.

Do You Have to Take Out All The Cash At Once:

No. There are several different types of reverse mortgages. You can choose to take out a lump sum all at once, but most people opt for either a monthly payment or a line of credit set up where they can access as much or as little money as they need each month.

Will a Reverse Mortgage Interfere With Your Government Assistance?

You will have to watch out for this. If you take out all the money in one lump sum, you may end up with problems with qualifying for government assistance. However, if you only take out the amount you need each month, and you spend that money in that calendar month (in other words, you can’t take it all out and invest it, but you can take out what you need each month for expenses, or for a trip, or to pay off medical bills, or to pay for home improvements), there should be no problems whatsoever. Your social security, Medicaid, and other government assistance checks should not be affected at all.

Why Do You Have to Speak to a Counselor as Part of the Application Process?

You’ll have to consult with a credit counselor as part of the application process because the loan is FHA-insured, which means the Federal government backs the loan. As such, the government feels the need to carefully screen applicants and make sure a reverse mortgage is in the best interest of both parties-the lender and the borrower. It’s simply part of the program, which was created to help senior citizens stay in their homes longer. The counselor will explain all the aspects of the program so you completely understand how it works and can make a decision that is truly in your best interest.

Can You Outlive the Loan?

You will never outlive the loan as long as you abide by the terms of the loan (make home repairs and pay your property taxes). The loan will remain open until you move out of the home or pass away, at which time the sale of the home will be used to pay off the reverse mortgage.

What if You Are Still Alive When You Hit the Limit on Your Loan? Will the Lender Sell Your House Out From Under You?

It may sound too good to be true, but the lender cannot sell the house out from under you. You will still own the house, and when you’ve taken out all the money determined in your maximum claim amount, you’ll simply be unable to take out any more money from that loan. You won’t have to pay the loan back until you move, pass away, stop keeping up the home (you must still make home repairs), or stop paying your property taxes. Then the loan will come due, and you will either have to pay up the loan or the house will be sold and the proceeds from the sale will pay off the reverse mortgage.

How Will a Reverse Mortgage Affect Your Heirs and their Inheritance?

No debt will be passed on to your heirs. They will not end up saddled with your loan. However, the house will be sold and the proceeds used to pay off the reverse mortgage at the time that you either move out or pass away. After the loan has been satisfied, the remaining proceeds will be passed on to your heirs as you have designated in your will.

Do You Have to Pay Taxes on the Money You Get From Your Reverse Mortgage?

No. Money from a reverse mortgage qualifies as tax-free income.

What Are the Tax Consequences of Taking Out a Reverse Mortgage?

While you may be used to deducting the interest you pay on your mortgage from your taxes, you’ll no longer have that option with your reverse mortgage. Any interest you pay on your reverse mortgage will not be tax-deductible until the house is sold and the mortgage is paid off. The only exception with this rule is money you use from your reverse mortgage for home improvements:: any interest you pay on money taken out for the purpose of home improvements can be deducted.

Reverse Mortgage Conclusion

There are several factors to consider when evaluating a reverse mortgage. To determine if a reverse mortgage is right for you, talk to a reverse mortgage credit counselor.