1. You’re 62!
Happy birthday! The federally-insured Home Equity Conversion Mortgage program requires borrowers to be at least 62 years of age in order to qualify for the loan.
Other basic requirements include owning your home outright or with most of your mortgage paid off, maintaining that home as your primary residence, and staying current on property tax and homeowners insurance.
2. You don’t want to leave your home—ever
If you’re comfortable in your current home and have no plans or desire to move, a reverse mortgage can help you stay. With a federally-insured HECM, you still retain ownership of your house and may stay there for as long as you live. Your reverse mortgage doesn’t need to be repaid until you pass away or move out of the home.
One feature of HECMs that’s great for borrowers is that they are non-recourse.
That means you will never be required to pay back more than what your house is worth at the time of sale, even if your loan balance ends up exceeding your home’s appraised value.
3. Or, you DO want to move
Conversely, you may be considering a new location. Whether it’s to be closer to family or to live in a more temperate climate, many people opt to move in their later years.
Another reason is so that you can move into a house that’s more aging-in-place friendly, perhaps to a single level or one with wider hallways.
There’s a reverse mortgage for that, called the HECM for Purchase. This program allows you to purchase a new home and take out a reverse mortgage at the same time, cutting down on both costs and paperwork.
4. You’re ready to retire—or at least planning for it
Reverse mortgages aren’t just a way to get cash now—they can also be used as a financial planning tool.
Some financial planners have suggested that getting a reverse mortgage as a standby line of credit can help delay the need to tap into your retirement portfolio or apply for your Social Security benefits.
With an adjustable rate line of credit, you can still get an upfront amount if you need money to pay off an existing mortgage or cover mandatory obligations as required through the HECM program.
However, you can keep your remaining proceeds untouched in a line of credit that grows at the current rate of interest plus 0.5% on an annual basis. In other words, the amount of loan money available to you increases over time.
5. You want to make some home repairs, but don’t want a HELOC
Are there are some home improvements you’ve been wanting to do, such as installing a new roof or renovating your master bathroom?
Rather than have to make monthly payments on a home equity line of credit (HELOC) or home equity loan, a reverse mortgage could supply the funds you need—and you don’t need to pay it back until you leave your home.\
HELOCs also can restrict how you use your loan proceeds, but with a HECM, you can use that money however you see fit, as long as you continue to pay taxes and insurance and maintain your property.
6. You just finished paying off your mortgage
One condition of the HECM program is that it must take a “first-lien” position, meaning if you have a “forward” mortgage, you’ll need to use your reverse mortgage proceeds to pay it off. If that mortgage has already been paid off, you’ll have that more much home equity to access when you take out a reverse loan.
Let’s say you’re 67 years old and have a home valued at $350,000. In one scenario, you still owe $38,000 on your mortgage.
Plug that into our calculator opting for a fixed-rate line of credit loan option, and you would qualify for a total principal limit of $151,342, versus $189,342 if your mortgage was paid off.
The difference comes in the amount you’re able to receive upfront at the time the loan closes. With an existing “forward” mortgage, you would have access to about $74,202 at closing. But without that mortgage balance, your upfront proceeds jump to $112,202.
Per the rules for the HECM program, you must then wait one year from the time of closing before you can access the remainder of your proceeds.