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Information and Learning Center
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What is a Reverse Mortgage?
Since 1989 the HECM - (Home Equity Conversion Mortgage) has been insured by the federal government through the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD).
Since its inception, the reverse mortgage program has helped thousands of homeowners just like you to safely access the equity in their home to better enjoy your retirement years.
What Are the Requirements?
- At least one homeowner must be 62 years of age
- You must reside in the home as your primary residence
- Your home must be either a single-family home, two to four-unit owner-occupied home, townhouse, approved condominium unit, or certain manufactured homes
- You must attend an educational HUD-approved counseling session by phone or in person
- You must continue to pay property taxes and homeowners insurance
Get started with our free guides:
How Much Money Can You Receive?
The amount available to you is formulated based on your age, today's current interest rate environment, and the appraised value of your home.
To receive a formal analysis call Toll Free (800) 565-1722, or try our free calculator. (Our calculator provides current interest rates, loan comparisons, equity pie charts and more.)
Reverse Mortgage Payment Options
Once you’ve learned that you qualify for a reverse mortgage and have started working with a lender, you’ll be faced with an important decision: which payment option you’d like. This choice can depend highly on how you are planning on using the funds from your reverse mortgage, or the strategy you’re trying to use over time by using your home equity. Choose the right payment option for you and you can maximize the benefits of the loan for your situation.
Line of Credit
The most popular payment option for reverse mortgages is a line of credit. In many cases, borrowers establish a standby line of credit that they can access only when funds are needed.
Another aspect that some borrowers see as a perk is that the line of credit option has a growth feature, which means that the unused balance grows over time, working to maximize your borrowing potential.
A line of credit can be extremely helpful for borrowers who don’t necessarily need the funds right away but have it as kind of a back up to use if unexpected expenses arise in retirement.
Learn more about the line of credit payment plan »
Term and Tenure Payments
A term payment gives borrowers fixed payments for a specified amount of time. One way to maximize the benefits of a reverse mortgage by using term payments is to establish the payments as a way to delay Social Security benefits.
Because Social Security benefits increase the longer you wait to begin receiving them, this is a strategy some borrowers use to maximize their loan.
Say you’re 65 and want to defer collecting Social Security until you turn 70, which would increase your payments. You can establish term payments for five years during that period of time.
The amount you will receive each month in payments is fixed regardless of whether your home value decreases or increases over the next five years.
A tenure payment oftentimes gets confused with a term payment. The similarity is that both allow for fixed monthly payments, but with a tenure plan, it allows for monthly payments as long as you live in the home as a primary residence.
With a tenure payment plan it doesn’t matter if the loan balance exceeds the value of your home, you will still receive the same monthly payment. The only way the payments will stop is if you pass away or leave your home permanently.
With both term and tenure payment options, you also have the choice to do a modified term/line of credit plan or a modified tenure/line of credit plan. In both cases, the plans allow you to establish a line of credit and receive fixed monthly payments for either a specified amount of time or as long as you live in the home.
A lump sum may be beneficial for you if you have a large payment to make, such as home renovations or medical payments. A lump sum allows the borrower to take the loan proceeds all at once.
With a lump sum, you do have the option regarding how much of your home equity you want to tap into. For example, a borrower can take out less funds than he or she is qualified to borrow. Say you need some renovations done on your home and you know it will cost around $30,000, but are eligible for an $80,000 loan. You may choose to take the lesser amount in this case.
Do keep in mind you’ll need to refinance if you choose down the road to take out more of your home equity.
For Home Purchase
A separate option you have in a reverse mortgage transaction is to use the funds to purchase a new home altogether.
An advantage that homeowners achieve through a reverse mortgage for purchase is the elimination of monthly mortgage payments. The transaction is completed using funds from the sale of your old home, private savings, gift money and other sources of income, which are then combined with the reverse mortgage proceeds.
For borrowers who are looking to maximize their buying potential for a new home, or who want to relocate in retirement, this option can help retirees strategically in achieving these goals.
There are many different strategies involving reverse mortgages, and the different payment plans can be used accordingly. For more information on which payment option might work best for your situation, contact us to learn more or visit the following resources:
Current Interest Rates
- Adjustable rates from 2.20%
- Fixed Rate 4.25% (6.09% APR)
Rates as of 1/24/18 Learn all about interest rates and how they affect your available loan and future home equity position at our helpful interest rates page »
Is a Reverse Mortgage Right For You?
Reverse Mortgage loans are not right for everyone. It may surprise you to hear a lender say this, but it is true.
If you are looking for a short-term loan you may be better suited for a different type of financing. A reverse mortgage loan can sometimes require closing costs, making it impractical for a short-term solution.
However, for those who wish to remain in their homes and need extra income or cash to do so, the Home Equity Conversion Mortgage may be exactly what you are looking for.
Educate yourself or family on the safeguards with our free .PDF guide. We explain what it is, how it works, and provide answers to many frequently asked questions and common misconceptions.
You can also find current articles in our blog featuring articles, personal advice and industry updates.
Our blogger and CEO Michael G. Branson has over 40 years banking experience, has been instrumental in educating some of the largest banks on the nuances of this program and its benefits to older homeowners.
Required HUD Counseling
Mandatory counseling is one of the first steps which may take place by either phone or in person. The role of the counseling agency is to review your unique financial situations during this private session and explore any alternatives that may be available, such as downsizing, city or state grants, or other alternatives that may be available to you.
Counselors are now required to ask potential borrowers about income, assets, debts, and monthly living expenses in order to perform a budget analysis. Once you have completed this session you will be provided a counseling certificate which you will need to sign and deliver to us as part of your loan application.
As a lender we must also give you a list of no less than 10 counseling agencies to choose from, 5 of which are mandated by the FHA and include the National Council on Aging.
Only after we receive your application and signed counseling certificate can we begin the processing of your loan. To find a HUD approved counseling agency near you, please visit our counseling resource page »
Helpful 3rd Party Resources:
- HUD.Gov HECM - http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten
- Video: HECM Line of Credit Explained - https://www.youtube.com/watch?v=xway1lbTatk
- ReverseMortgage.org/Road Map - http://www.reversemortgage.org/Your-Roadmap