A reverse mortgage does not sell your home to the bank. Banks are not in the business of owning homes — they want to make loans and earn interest. You will keep the title to your home in your name. However, the bank will add a lien onto the title for the amount that you borrow so that it can guarantee that it will eventually get paid back the money it lends to you.
Your estate inherits your home as usual but there will be a lien on the title for the balance of the reverse mortgage. The balance is however much you’ve received and interest. A reverse mortgage is a “non-recourse” loan which means the only asset guaranteeing the loan is the property itself. If the property value is less than the balance of the reverse mortgage, the bank is forced to take a loss and can not request other assets from the estate.
The FHA reverse mortgage was created specifically to allow seniors to live in their home for the rest of their lives. Because you receive payments from a reverse mortgage instead of making payments, you can never be evicted or foreclosed on for non-payment.
The reverse mortgage becomes due when all homeowners have permanently moved out of the property or passed away. There is no time limit.
Government entitlement programs such as Social Security and Medicare are not affected by a reverse mortgage. However, need-based programs such as Medicaid can be affected. You will need to manage how much you withdraw from the reverse mortgage in one month to remain eligible for Medicaid.
The proceeds from a reverse mortgage are not considered income and are not taxable. Furthermore, the interest on reverse mortgage is tax deductible when it is repaid.
Typically the only out-of-pocket expense is the cost of the appriasal. If you request it, many lenders will agree to pay that fee upfront for you and finance the cost into the loan.
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