Securing a Rhode Island Reverse Mortgage

The Rhode Island reverse mortgage option is one of the most effective financial tools available to seniors in the state of Rhode Island who wish to convert the equity in their homes into spendable cash.

What is a reverse mortgage?

Your lender takes over control of the equity in your home and pays you for it each month or in a lump sum; this is why these loans are called reverse mortgages -  your lender is paying you instead of the other way around.  

How can reverse mortgage funds be used?

The money you receive through your reverse mortgage can be spent on anything you want or need to spend it on. It can be used to take care of medical expenses, living costs, debts, and more. You can even use it to take a luxurious vacation if you like. 

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 Rhode Island, 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, and for how long?

In a reverse mortgage, your lender takes over the equity of your home and pays you back for it minus loan expenses.  You can choose to receive this money in a number of forms.

• You can get it all at once when the loan starts.  This is known as the lump sum option.
• You can get it on a monthly basis, in payments, as an income stream.
• You can get it as a credit line, which allows you to access the money when you need it.

If none of these is right for you, you can combine two or more of the above options to create a customized payout plan for yourself that fits with your own personal goals.

Your lender may own the equity of your home, but your lender does not own the home itself.  The title or deed remains in your name at all times during a reverse mortgage.  You don’t need to worry about losing your home, even once the equity runs out.  You can live in your home for the rest of your life without making any payments either on your original mortgage, which is eliminated by the reverse mortgage, or the reverse mortgage itself.

Does the equity need to be repaid?

You don’t have to pay back the reverse mortgage debt unless you move from your home or decide to sell your house.  Your lender owns the equity in your home, which means that the lender must be able to collect on this investment if your home changes to new ownership.  This occurs when you pass away and leave the home to your heirs.  Your lender can collect the money owed on the reverse mortgage as soon as your heirs have ownership of the home.

But you don’t need to worry about sticking your heirs with a load of debt.  The lender cannot collect more money than what the home is worth, which means your heirs can simply sell the home and pay the money to the lender to eliminate the debt.  If your heirs want to keep the home, they will have to refinance the mortgage into a new loan and pay it off as with any other loan.

Rhode Island Reverse Mortgage Lenders

Each lender you contact will quote you a different rate on your reverse mortgage.  Interest rates and fees charged by lenders can eat away at your home equity if you’re not careful.  Many lenders charge high fees when administering reverse mortgages.

Contact several lenders in Rhode Island and ask them what rates and fees they charge.  The one who offers the best deal should get your business.  Learn more about applying for a reverse mortgage by reading the steps outlined in our reverse mortgage checklist.

Rhode Island Senior Resources

Rhode Island's Division of Elderly Affairs has a number of programs available to help seniors living at home maintain their independence. For more information about these programs, visit the senior Programs and Services page and call the number provided to request more information. 

Lenders in: Rhode Island.