Securing a Illinois Reverse Mortgage

A reverse mortgage in Illinois is a great way to gain a steady and reliable source of income without sacrificing your financial independence. This type of loan simply taps into your own home equity and transforms it into money you can spend when you need it. If you’re “house rich” but “cash poor,” a reverse mortgage can provide the income you may need.

What is a reverse mortgage?

In a reverse mortgage, your lender takes ownership of your home equity, whatever this amount may be, and makes payments out of equity to you as long as the reservoir lasts. Reverse mortgages are available only to seniors who own homes and have reached the age of 62. The terms and rates will vary depending on your own financial needs, your age, and the lender you choose to work with, but the basic structure is the same in all reverse mortgages.

How can reverse mortgage funds be used?

The money you receive can be spent any way you please. Many seniors use these funds to pay for medical costs and retirement homes, but you can also simply use the money to pay for a nice vacation, college tuition for loved ones, or basic living expenses. 

What types of reverse mortgages exist?

Reverse mortgages have three forms:

• Goverment-insured: FHA HECM (Home Equity Conversion Mortgage).
• Single-purpose: backed by nonprofits or state or local government agencies. 
• Proprietary: backed by private entities.

The most common source is the FHA HECM reverse mortgage, which is insured by the Department of Housing and Urban Development (HUD). This article will focus on HECM reverse mortgages.

Who can get a reverse mortgage?

Homeowners aged 62 and older who own their home outright and have most of their mortgage paid off. If the current mortgage is not paid off, the initial reverse funds or some combination with out-of-pocket cash must be used to deplete the remaining balance. Credit score is not a qualifying factor. 

What costs are associated with a reverse mortgage?

There are several costs associated with securing an HECM reverse mortgage in Illinois, including but not limited to:

• Upfront fees: include the lender's fees, and can be paid from the reverse mortgage funds. This means, however, that the money taken cannot be borrowed back. So a $200,000 reverse mortgage with $16,000 in fees paid via the reverse mortgage funds will leave the homeowner with $184,000. 
• Closing fees: include all the same fees required of a traditional mortgage closing. 
• Reverse mortgage counseling fees: HUD mandates all reverse mortgage homeowners attend reverse mortgage counseling. Fees are in the $100 range but can be waived for lower income seniors. 
• Mortgage insurance: an upfront mortgage insurance premium (MIP) must be paid for reverse mortgage borrowers. It can be as low as 0.5% and as high as 2.5% of the appraised home value, unless the home is over $625,500, in which case the upfront mortgage insurance is calculated by the lender. 

How will I receive my funds?

You can arrange to receive the funds from your lender in a number of ways. Select the method that works best for you and meets your long term financial goals:

• Get your money as a lump sum, all at once.
• Get it on a monthly basis, as an income stream.
• Get it when you need it through a line of credit that you don’t have to pay off.
• Combine any of the above methods to customize your own arrangement.

As mentioned above, your lender will take control of the equity or value of your home.  But your lender does not own your home and never will. A reverse mortgage does not transfer ownership of the home itself.  This allows you to continue living in the home until the day you decide to move or in the event of passing away.

Does the equity need to be repaid?

You don’t have to pay back the reverse mortgage to your lender unless you move out, sell the home, or pass away. 

If the reverse mortgage homeowner chooses to live out the rest of their life in the home, their heirs will assume the debt of the reverse mortgage. Heirs can sell the home and pay back the debt, or simply refinance the debt into a standard loan and make payments as with any other mortgage. The government regulates the repayment of reverse mortgages and prevents lenders from collecting more than what the home is worth at the time of collection, even if the debt you incurred was far higher.

Illinois Reverse Mortgage Lenders

The most difficult part of taking out a reverse mortgage is finding the best lender to work with. All lenders charge set fees and interest rates that deduct from the amount of equity you plan to apply to your reverse mortgage loan. These fees and rates differ from lender to lender. Compare at least four or five different lenders in your part of Illinois before you pick one to work with. Try to identify which one will charge you the lowest rates and fees. If you want more information about this and about applying for a reverse mortgage, read our reverse mortgage checklist.

Illinois Senior Resources

The Illinois Department on Aging partners with a number of providers and programs that enable seniors to continue living at home and maintain independence. For more information about services in your county, from Adams to Woodford, visit the Partners and Providers page on the official site. 

Lenders in: Illinois.