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Discover the keys to unlocking your home's hidden potential and securing a brighter financial future. From understanding eligibility requirements to exploring repayment options, our articles will help you navigate the landscape of homeownership and reverse mortgages.
Reverse mortgage basicsIs a Reverse Mortgage Worth It? 4 Things to ConsiderHave you ever considered the idea of getting a reverse mortgage? Have you heard mixed opinions from others on whether or not they are beneficial to the consumer?
Below, we take a closer look at reverse mortgages, their pros and cons, and the factors you should consider when deciding if they're worth pursuing.
This includes:
Eligibility and requirementsYour long-term goalsImpact on your home's equity Interest rates and feesAlternative options
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
What is a reverse mortgage?
A reverse mortgage is a loan that works in “reverse” of a traditional or “forward” mortgage. Instead of making a monthly payment every month over a specified period, a reverse mortgage allows you to borrow against your home without the burden of a mandatory monthly mortgage payment. Interest on the loan is added to the balance, so the balance does increase over time.
ProsNo monthly mortgage payment is requiredReverse Mortgage proceeds can be used for virtually anythingGuaranteed line of credit on the Home Equity Conversion Mortgage (HECM) programNon-Recourse loan - you can never owe more than the value of the propertyNo impact on Social Security or Medicare BenefitsConsReverse Mortgages can have higher closing costs than traditional loansCan impact needs-based programsIncreasing loan balance can impact the equity position of the home
» Reverse mortgages aren't for everyone: Explore the pros and cons further
1. Eligibility and requirements
To be eligible for a reverse mortgage, you must be at least 62 years of age for the HECM program (some private programs go as low as 55 in certain states), the property must be your primary residence, you must be able to meet the financial assessment requirements and credit criteria as well as have a property that meets the program guidelines.
When you have a reverse mortgage loan, as the property owner, you are responsible for the timely payment of real estate taxes and homeowners insurance premiums. Failure to do so can result in the loan being called due and payable.
The property must remain the primary residence of at least 1 of the borrowers throughout the loan. If you plan to relocate from your current residence, a reverse mortgage is the best fit once you are in the property you wish to remain in.
2. Your long-term goals
Assessing long-term goals is paramount when considering whether a reverse mortgage will be your right decision. By envisioning the future, you can determine if the reverse mortgage will align with those goals and lay the foundation for a financially secure and fulfilling retirement.
Whether it’s ensuring a comfortable standard of living, funding healthcare expenses, or any other important factors, a clear understanding of these goals empowers you to make informed decisions and helps guard against potential pitfalls.
It's critical to educate yourself on the terms of a reverse mortgage. In fact, it's mandatory to receive HUD counseling before committing to a reverse mortgage to ensure you fully understand what a reverse mortgage is and your obligations as a borrower.
» Want some expert advice? Consult with a reverse mortgage lender
3. Interest rates and fees
The fees on a Home Equity Conversion Mortgage (HECM) can be higher than a standard or “forward” mortgage. This is due to the Mortgage Insurance Premium that HUD charges for insuring the loan. The upfront Mortgage Insurance Premium is 2% of the lesser of the property value or Maximum Lending limit, which is currently $1,149,825 as of 2024.
However, there is value to the consumer in this loan being insured by the government even though it comes with a higher fee. By having your reverse mortgage insured by the government, you are guaranteed access to your line of credit for as long as the loan is in good standing. If property values decrease or your lender goes out of business, your line of credit is unaffected. It cannot be frozen or reduced arbitrarily as a Home Equity Line of Credit (HELOC) can.
4. Alternative Options
The last thing you should consider before determining whether or not a reverse mortgage will be worth it for you is what are the realistic alternatives. It is important to compare the reverse mortgage with other alternatives and weigh the pros and cons of each option.
One example would be downsizing, selling your home, and moving to another more affordable home. In some cases, this is feasible and may present a great option if your current home is too large or a 2-story, etc. Downsizing may not be a significant benefit given high real estate prices in many markets, making downsizing difficult. However, utilizing the reverse mortgage for purchase program combined with a downsize could present the perfect solution if a downsize is necessary but will need more financial relief.
Unsure about the cost of a reverse mortgage? Try our Reverse Mortgage Calculator by ARLO™ to get a quote. Here, you can quickly compare different reverse mortgage programs to choose the best option.
Is a reverse mortgage worth it?
A reverse mortgage is a program that benefits many, but there are better options for some. Ultimately, the answer to this question will come down to your specific situation and goals. You must weigh the pros and cons of all the options available and seek guidance from trusted advisors when necessary. Education on the program is critical to making an informed decision, and that is why we have as much information on our website as possible to help our potential customers educate themselves.
» Want more information? Consult our complete guide to understanding reverse mortgages
Reverse mortgage typesHECM vs Reverse Mortgage: Is There a Difference?Let's clear the air at the very start. All HECMs are reverse mortgages, but not all reverse mortgages are HECMs. HECM is the acronym for the HUD/ FHA-insured Home Equity Conversion Mortgage (HECM). It is a valuable tool for senior homeowners looking to tap into the home equity they've built up over the years, but it is not the only reverse mortgage available.
So when you hear someone say "reverse mortgage," they may very well be talking about a HUD HECM loan or one of the many private programs available (often referred to as proprietary or jumbo reverse mortgages).
Let's delve into the world of HECMs at this point, and we will leave the other available reverse mortgages for another day, seeing as the vast majority of all reverse mortgages closed are done with the HECM program. We will seek to shed light on their operation, eligibility criteria, repayment process, and more.
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
Understanding HECMs
As we discussed, HECM is synonymous with the term "reverse mortgage."
The concept behind a reverse mortgage involves leveraging the equity in your home as collateral to secure a loan while allowing the interest to accrue and be added to the balance rather than requiring the borrower to make monthly repayments. This unique financial instrument allows senior homeowners to access funds in several different ways without making monthly payments.
How HECMs work and their primary purpose
With a HECM loan, the lender uses a HUD-approved appraiser to determine the equity available in your primary residence and extends a loan based on that equity. Although the lender must decide and close the loan with their funds, it is a joint process with HUD through their systems and FHA from the start. The lender receives a "Case Number" from HUD, orders the appraisal from a HUD-approved appraiser, and logs it into the HUD appraisal portal, allowing HUD to review the appraisal even before the lender can issue a loan approval. If HUD deems it is warranted, a second appraisal may be required before the lender can issue the approval. So, while the lender underwrites the loan to HUD program rules and parameters, HUD must then insure the loan after the loan closes, and if the loan does not meet their requirements, they can reject the insurance request.
What does all this mean to the borrower? While all lenders may interpret those HUD rules slightly differently, they all refer to the same manuals, and the differences will be minimal. What sets HECMs apart from other loans is that you aren't required to make regular interest payments. Instead, the interest accumulates and is added to the outstanding balance.
This means that the loan balance may increase over time, allowing you to access your equity without the burden of monthly payments. What sets one lender apart is how well they service their borrowers. Independent rating agencies like Better Business Bureau and Google Reviews are good for borrowers to know how their HECM lender has previously treated other borrowers.
HECMs serve a crucial purpose in senior homeownership by providing a financial lifeline for those who may not qualify for traditional loans but have substantial home equity. They empower you to access a portion of your home's equity while retaining ownership and the ability to reside in the property for life without making any mortgage payments (you must pay your taxes, insurance, and other property charges like HOA dues on time).
Clarifying terminology
Legal and regulatory distinctions
One critical aspect of HECMs is that they're insured by the U.S. Department of Housing and Urban Development (HUD), similar to other FHA programs. This insurance safeguards borrowers against predatory practices and provides security for lending institutions.
Who qualifies for HECMs?
Several factors determine the maximum loan amount, the most important of which is your age (62 years or older), with older borrowers potentially qualifying for higher amounts. Additionally, you need sufficient equity in your primary residence to meet HECM qualifications.
While the eligibility criteria for HECMs are mainly consistent with those of other reverse mortgage options, there may be differences in upfront costs. As such, potential borrowers should consult with multiple lenders for the most favorable terms.
» Looking for reputable lenders? Try these top banks.
Comparing HECMs and reverse mortgages
Let's see how HECMs and reverse mortgages compare based on various criteria:
CriteriaHome Equity Conversion Mortgage (HECM) Proprietary Reverse MortgageBorrower minimum age6255Line of credit termLifetime10 yearsMay be frozenNoYesLine of credit growth rateYesNo$0 monthly payment optionYesYesIncome requirementsLimitedLimitedCredit scoreNo Minimum620ReservesNoNoLow/no closing costsNoYesFixed interest rateYesYes
Curious how a reverse mortgage compares to a HELOC? Check out our article "Reverse Mortgage vs HELOC – What's the Smarter Choice?"
Loan types and payout options
Varieties of HECMs
HECMs offer the choice between fixed-rate and adjustable-rate programs.
Fixed-rate mortgages have a fixed rate that will not change over the life of the loanAllow for only one draw, and all funds must be taken at the close of the loanThis may require borrowers to lose some of the available proceeds if the initial restriction of funds will not allow them to take all funds that would otherwise be availableIf the balance is paid down, funds cannot be reborrowedAdjustable-rate mortgages have rates that can go up or down Allow for multiple draws as long as there are still funds left on the line of creditBorrowers do not lose availability of funds as any initially restricted funds become available after 12 months, and with the adjustable rate loan, the borrower can take another draw at that timeIf funds are paid down, funds can be reborrowed
You can access funds from HECMs in various ways. The fixed-rate loan requires one initial draw of all funds available, but the adjustable rate line of credit allows for much more flexibility, including a lump sum and fixed monthly payments, or you can draw as needed. The interest is calculated based on the monthly outstanding balance, providing flexibility for covering expenses like long-term in-home care.
Understanding loan repayment
Over time, your HECM balance may increase as the monthly interest accrues. One of the outstanding features of the HECM loan is that no matter how much the loan balance grows, due to the non-recourse nature of the loan, the lender has only the property as collateral for the debt. This means that if the balance exceeds the home's value when the borrower passes, neither the borrower's estate nor the heirs will have to pay the shortfall. In fact, if heirs want to keep a home worth less than the amount owed, HUD will accept 95% of the current appraised value, no matter how much below the actual amount owed.
As a borrower, you're responsible for paying property taxes and maintaining insurance, but these expenses cannot be added to the loan balance like interest can.
In the event of a death or should you and your spouse move out of the property, you must inform the lender as the loan will become due. Typically, the loan is repaid through the sale of the property. If the sale price exceeds the mortgage balance, heirs aren't liable for the shortfall, as the HECM is structured to prevent a short sale.
» Wondering what'll happen to your heirs in the event of a death? Find the answers here.
The importance of financial counseling
Before securing a HECM, you must undergo HECM counseling. This counseling will give you a comprehensive understanding of the qualification process and the loan's terms and structure, ensuring you make an informed decision about your financial future. While it's mandatory for borrowers, heirs are encouraged to attend to grasp the program's intricacies.
Determining borrowing limits
The maximum loan limits for HECMs align with typical FHA loan limits. Individual loan amounts are influenced by your age and current interest rates at the time of application.
Exploring costs and fees
Fees associated with HECMs can vary from lender to lender. As a general guideline, you can expect an origination fee of 1-2% of the loan amount, which can typically be added to the loan balance. Other fees, such as appraisal, recording, and title search fees, may also apply at closing and can be added to the loan or paid out of pocket. To ensure the most favorable terms, comparing costs from multiple lenders is essential.
Protecting consumers through regulation
HECMs are subject to strict regulation by the U.S. Department of Housing and Urban Development (HUD), the same agency overseeing all FHA lending in the United States. This rigorous oversight is in place to protect both borrowers and lenders and ensures that HECMs adhere to ethical and transparent practices.
Maximize your retirement years with HECMs
HECMs and reverse mortgages provide flexibility and the peace of mind that comes with regulatory oversight, making them a valuable option for those looking to enhance their retirement years. The best way to make an informed decision regarding these financial instruments is to consider your options carefully, seek financial counseling, and explore the terms and costs of various lenders.
» Find out how much you'll qualify for with this Reverse Mortgage Calculator.
Reverse mortgage alternativesReverse Mortgage vs. Traditional Mortgage: Which Is Best for You?
Many seniors in the US turned to reverse mortgages to supplement their incomes during the coronavirus pandemic. Yet, many seniors still don't know much about reverse mortgages and how they differ from traditional or "forward" mortgages. While both are loans, a traditional mortgage requires regularly scheduled payments directly from the borrower. In contrast, in a reverse mortgage, no monthly payment is required, and the interest due on the outstanding balance is added to the balance each month.
Both have advantages and disadvantages and are very different products suited for different homeowners. Keep reading to discover the key considerations of each, which one is better for seniors, and why.
» Confused about reverse mortgages? Learn all you need to know with our simple guide
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
Financial Considerations
Repayment
A traditional mortgage requires mandatory monthly payments over a specified period of time until the loan is repaid in full. The most commonly utilized term is a 30-year term, but shorter-term loans are also available. The shorter the term, the higher the monthly payment will be.
On the other hand, a reverse mortgage requires no monthly mortgage payment. However, there are benefits to making payments on your reverse mortgage. The interest due on a reverse mortgage is added to the loan balance monthly. Thus, the loan balance increases over time. Repayment is only due once you no longer live in the home or cannot meet the loan terms.
Upfront costs
With both a traditional and reverse mortgage, there will be closing costs to obtain the loan, such as administrative fees, legal charges, appraisals, and more. However, the fees on the reverse mortgage are higher due largely to the Mortgage Insurance premium charged by HUD to insure the Home Equity Conversion Mortgage (HECM). The mortgage insurance on the HECM provides significant guarantees to the homeowner. The guarantees are that your available funds cannot be reduced or frozen due to adverse market factors and that the loan will be non-recourse, which means you can never owe more than the property's value. Additionally, the closing costs are almost all financed through the loan, just like traditional mortgages, and borrowers usually only come out of pocket for the appraisal cost.
Impact on heirs
A traditional mortgage requires regularly scheduled payments, which results in the reduction of the outstanding mortgage balance.
A reverse mortgage does the opposite. The interest due on the loan is added to the loan balance each month, meaning that the balance steadily increases over time. If a reverse mortgage is in place, the heirs may see a smaller inheritance upoborrower'sower's death.
Whether you have a traditional or reverse mortgage, the heir to your home still has to satisfy the debt. With a reverse mortgage, the heir can refinance the loan to keep the property, pay it off with other funds, or sell it to pay off the balance. The reverse mortgage is non-recourse, which means that the heir will never have to worry about paying an amount over the property value.
» Learn more: Critical steps for heirs of a reverse mortgage
Flexibility and usage
Receiving funds
A traditional mortgage is known as a Closed-End loan, which means that all available funds being borrowed are issued at the time of loan consummation. Those funds will pay off any existing mortgage(s) or lien, the financed closing costs, and a lump sum of cash to the borrower if the loan is a cash-out refinance.
A reverse mortgage can either be Closed-End or Open-Ended. An Open-Ended loan provides excellent flexibility as funds can be issued in several ways, including a line of credit, monthly payment distributions, a lump sum, or a combination of all options. With the line of credit option, the unused funds in the available line of credit are subject to a line of credit growth rate, which allows access to even more funds over time than initially qualified for.
Supplementing income
A borrower may be able to withdraw a lump sum from their home equity via a traditional mortgage. However, the mandatory monthly payments are likely higher per month than the previous mortgage due to borrowing more money. This increased monthly expenditure will not aid in supplementihomeowner'sner's income and, if so, will likely take away from the lump sum proceeds over time, leaving the homeowner in a similar situation they were in before while owing more on the home.
A reverse mortgage does not require monthly mortgage payments, significantly benefiting homeowners looking to improve their monthly cash flow. Additionally, the borrower can take their proceeds in a monthly payment plan, which provides for a monthly distribution directly deposited to their account to supplement their other income sources. The way a reverse mortgage works makes it the best loan program available to supplement your income.
» Did you know you can use a reverse mortgage to combat inflatioHere'sre's how
Limitations
A reverse mortgage has no additional restrictions on how borrowers spend their proceeds compared to a traditional mortgage. All proceeds are advanced to the borrower's bank account. From there, they can spend the money how they choose.
We suggest using our Reverse Mortgage ARLO™ Calculator to quickly compare rates and costs to find the best reverse mortgage option.
Summary of the pros & cons
Traditional mortgage
ProsAvailable to all age groups (18+)Yodon't’t have to live in the mortgaged homeLower closing costs on averageConsMandatory monthly mortgage payments over many yearsNo flexibility in how the proceeds can be disbursedDoesn'tt improve monthly cash flow
Reverse mortgage
ProsNo mandatory monthly mortgage paymentsFlexibility in receiving proceeds (line of credit, monthly payment distributions, lump sum, or combination of all)Improved monthly cash flowUnused line of credit grows in availability, providing access to more funds over time.HECM program insured by the government providing guaranteed access to line of credit funds regardless of market conditionsConsOnly available to seniors (age 62 years or older) on the HECM program and 55 or older on private reverse mortgage programs in some statesHigher closing costs on average
Final verdict: which is better for seniors?
Put simply, it depends on the situation and the senior's intentions. If your primary concern is maintaining an equity position in your property as part of an inheritance for your heirs, or if you anticipate purchasing another home and using the equity from your existing property, there may be better choices than a reverse mortgage.
However, the benefits of a reverse mortgage can result in a better quality of life for seniors by giving them access to funding as they need it without the burden of monthly payments. This can be used to provide additional monthly income, fund home repairs, pay for in-home healthcare, prevent the foreclosure of a traditional mortgage, or even pay off high-interest debt.
If you understand the reverse mortgage program, the benefits and uses substantially outweigh those of the traditional mortgage, making it a worthwhile choice for seniors.
» Need more info? Reach out to a qualified reverse mortgage lender or continue your journey learning how reverse mortgages work.
Reverse mortgage basics4 Most Common Reverse Mortgage Complaints in 2023Reverse mortgages, despite their potential benefits, often face criticism. Since 2019, less than 1% of eligible homeowners have taken the reverse mortgage option.
That's why we delve into the most common complaints surrounding reverse mortgages below. By addressing these issues, we hope to provide a clearer understanding of this financial option and dispel common misconceptions. This includes:
Reverse mortgages come with high feesReverse mortgages "eat up" your home equityMy heirs have to pay off the excessive loan balanceReverse mortgages can lead to foreclosure due to growing loan balances
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
1. Excessive fees
Myth: Reverse mortgages come with high fees
Fact: While it's true that reverse mortgages used to have excessive fees, recent regulatory changes have made them more affordable. Today, fees for originating a reverse mortgage align with those of a regular mortgage.
Similarly, the interest rates on reverse mortgages are higher than those on traditional 30-year fixed-rate mortgages. But remember:
The longer repayment period justifies the higher interest rate, as the lender waits longer for their payback.The increased interest rate isn't excessive and should be considered regarding the loan's benefits.
Still wary about reverse mortgage costs? Use our Reverse Mortgage Calculator to get a quote. You can see:Real-time interest ratesAccurate cost estimates based on your locationSide-by-side amortization schedules
2. Equity erosion
Myth: Reverse mortgages "eat up" your home equity
Fact: A reverse mortgage does reduce your home equity over time, but the benefits can outweigh this concern, including improved financial security and quality of life. It's essential to remember that the loan is structured so your heirs won't have to pay any amount over the property's sales price.
3. Burden on heirs
Myth: My heirs have to pay off the excessive loan balance
Fact: Again, the reverse mortgage is designed to protect your heirs. They don't have to cover any loan amount exceeding the property's value.
4. Foreclosure concerns
Myth: Reverse mortgages can lead to foreclosure due to growing loan balances
Fact: The loan balance itself doesn't trigger foreclosure. Foreclosure in a reverse mortgage happens only if the homeowner fails to pay real estate taxes or homeowners' insurance. This can be because of:
Poor financial planning or some other reason preventing them from making payments.The homeowner vacates the property as a result of death or by simply moving to another location.
The mortgage will then become payable, and the property could be foreclosed upon if every effort to sell the property is not being made.
» Here's how you can default on a reverse mortgage
How do you mitigate common complaints about reverse mortgages?
One of my statements that I use often, and I hear it repeated by others and am very happy when I do, is, “I would rather you not get a reverse mortgage for the right reasons than get one for the wrong reasons.”
Significant contributors to negative reverse mortgage sentiments are a lack of awareness and misunderstanding about how they work and the costs involved.
In the past, there was limited education available on this topic. Today, mandatory upfront counseling sessions for borrowers and sometimes even heirs help eliminate false ideas and ensure that individuals fully understand the program.
If not, you could overlook these potential reverse mortgage advantages:
No mortgage paymentLong-term care coverageAsset protectionStop foreclosureRemain in one's homeDebt elimination
Doing the right thing in our business, reverse mortgages means doing what is suitable for senior homeowners. This means we do not “sell” a loan to our customers. We educate them about the loan program, the various options available, and the good and bad based on the information they are requesting. - Michael G. Branson, CEO All Reverse Mortgage, Inc.
» Delve into these reverse mortgage pros and cons to get the full picture
Reversing misconceptions: A new perspective on reverse mortgages
Common complaints about reverse mortgages often stem from misconceptions and a lack of understanding. By addressing these concerns and providing accurate information, you can decide whether a reverse mortgage aligns with your financial goals and needs. It's essential to seek education, consult with knowledgeable lenders, and weigh the potential benefits against the perceived drawbacks when considering this financial option.
» Still feel like you're in the dark? Consult our complete guide to understanding reverse mortgages
Reverse mortgage basicsWho Gets the Most Out of Reverse Mortgage?Reverse mortgages offer a unique financial solution for individuals, especially seniors, looking to tap into the equity of their primary residence. Unlike traditional or "forward" mortgages, reverse mortgages don't require monthly mortgage payments. The ability to borrow money without the burden of a monthly payment obligation separates the reverse mortgage from any other type of financing option.
Below, we delve into who benefits the most from reverse mortgages, plus their unique benefits and suitability as a financial product.
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
Who benefits the most from reverse mortgages?
Seniors who stand to gain the most from a reverse mortgage typically fall into the following categories:
People seeking extra monthly income
For a retiree living on a fixed income, a reverse mortgage can provide a much-needed source of additional monthly funds to supplement their fixed income, whether a Pension or Social Security.
The reverse mortgage has a payment plan option that is called a "tenure" payment plan. The tenure payment plan is for life as long as the loan is in good standing. To keep the loan in good standing, a borrower must live in the property as their primary residence and maintain the taxes and insurance on the home. This payment plan provides the borrower with a guaranteed monthly payment that they can count on to increase their monthly cash flow above their fixed income.
People needing to fund home improvement projects
A reverse mortgage line of credit can be used at the borrower's discretion to fund several home improvement projects. Whether renovations are to modernize the home and increase its value or make it more functional for the homeowner to age.
People who need help covering medical costs
Seniors with medical costs not covered by insurance often look to the reverse mortgage to fund those expenses. One such example would be the significant expense of in-home care. Seniors who do not wish to leave their home but require regular assistance can utilize a reverse mortgage to access the additional funds necessary to cover these expenses.
People looking to reduce their housing costs
Many seniors still have a traditional mortgage on their home with a mandatory monthly mortgage payment that is too difficult to afford as they approach retirement. A reverse mortgage is an excellent option for these homeowners when they can get enough funds from the reverse to pay off their existing mortgage. By doing this, they can continue living in their home, with the mortgage payment they previously paid being eliminated, making their current home more affordable.
People looking to have more cash available
As everyone knows, unexpected expenses always arise. Whether medical, home repairs, auto repairs, etc. Access to a line of credit via a reverse mortgage provides significant peace of mind to a senior homeowner, knowing that they have funds available to cover these unexpected expenses without adding additional obligations to their monthly budget or, worse, being unable to afford them.
» Wondering what happens to your reverse mortgage after death? Get all the answers.
Benefits and suitability of reverse mortgages
Several benefits come with a reverse mortgage; one of the most significant benefits is the absence of a mandatory monthly payment. Traditional or "forward" mortgages have a mandatory monthly payment for a specified time. With a reverse mortgage, the interest on the loan accrues on the balance and is not repaid until the loan reaches maturity. A reverse mortgage only reaches maturity when the last surviving borrower or eligible Non-Borrowing Spouse passes away, vacates the property permanently, or if the home is sold.
The reverse mortgage is most suitable for homeowners looking to remain in their home but see a need or benefit of having additional funds available. They do not want to have the burden of monthly mortgage payments in their monthly budget.
To determine if you're a suitable candidate for a reverse mortgage, consider the following criteria:
Your age: For the Home Equity Conversion Mortgage (HECM) insured by the government, you must be at least 62 years of age, and for non-government-insured reverse mortgages, depending on the state you live in, you can sometimes be as young as 55.Your current equity position in your home: A reverse mortgage requires no monthly mortgage payments, and therefore, the loan-to-value you can borrow is lower than a traditional mortgage, where you must make mandatory monthly payments.Your retirement plans: A reverse mortgage is designed to be the last loan you will ever need on your home. However, if your retirement plan involves a relocation, there may be better options than obtaining a reverse mortgage on your current home due to the fees involved with obtaining the loan.
Additionally, various resources (such as training videos, printed materials, and even a reverse mortgage calculator) help homeowners understand the intricacies of reverse mortgages and determine if this financial tool fits their needs.
» Looking for a lender? These top lenders currently offer reverse mortgages.
Fixed income and retirement planning
Retirees often accumulate substantial home equity over the years, but it's practically untouchable without a reverse mortgage. Moreover, traditional home loans require monthly repayments, which can strain a retiree's budget. With a reverse mortgage, a retiree can access their home's equity without needing immediate repayment, providing a crucial source of financial flexibility.
Here's how a reverse mortgage can contribute to a more secure retirement plan:
Payment-free access: Ultimate peace of mind knowing you have access to a guaranteed line of credit that you can borrow from without having to make monthly payments once you access those funds.Debt reduction: Proceeds from the loan can be used to pay off debts, freeing up existing income and improving overall financial stability.Funding various needs: Reverse mortgage funds can finance home improvements, healthcare expenses, vehicle purchases, travel, and other essential expenses, enhancing your quality of life.
Reverse mortgages and homeowners with significant equity
The equity position a homeowner has in their home is vital to how the reverse mortgage will benefit them. The more equity you have in your home, the more funds you can access from a reverse mortgage. Those who own their home outright will access the most possible proceeds from a reverse mortgage loan because there will be no existing mortgage to pay off.
» Is it possible to get out of a reverse mortgage? Yes, and here's how.
Age and long-term planning
Age is a significant factor in determining who can benefit the most from a reverse mortgage. The older the borrower, the higher the percentage of loan to value they can borrow. This is due to life expectancy. The younger you are, the longer your life expectancy will be, resulting in more interest accrual over the life of the loan.
Whether you are a younger borrower or an older borrower, your long-term plans will be important to consider how you use a reverse mortgage and whether it is the right solution for you:
The time frame of your retirement: At what age are you planning to retire, or are you already retired? Are you taking Social Security at 62 or age 70? How much money per month do you need realistically, and do you have the funds to accomplish that without getting a reverse mortgage? If you plan to retire closer to 62 but wish to delay Social Security until age 70, you are going to put a strain on your existing assets once you retire.Preserving existing assets: Retirees may have liquid assets that generate income. Depleting those assets will reduce the income generated from those assets. Obtaining a reverse mortgage allows them to use their home equity for additional funds to cover expenses without depleting these valuable assets.Long-term healthcare: If one spouse requires long-term healthcare, a reverse mortgage can cover those expenses while safeguarding existing assets for the surviving spouse.
Debt management and financial flexibility
While the proceeds from a reverse mortgage can be used for various purposes, paying off debts can be particularly beneficial in specific scenarios.
Here's how a reverse mortgage can help you manage your debt:
Debt elimination: Reverse mortgage proceeds can be used to pay off your consumer debts. You can eliminate credit card balances with extremely high interest rates, auto loans, and other installment debts.Foreclosure prevention: For seniors on a fixed income, traditional mortgage payments, real estate taxes, and insurance can be challenging to keep up with. A reverse mortgage can replace the existing mortgage, eliminating monthly payments and reducing the risk of foreclosure.Improved quality of life: Using reverse mortgage proceeds to pay off other debt drastically improves your monthly cash flow because the reverse mortgage requires no monthly payment.
Embrace financial freedom with reverse mortgages
Reverse mortgages are a gateway to financial freedom and security. These versatile tools can help you unlock the potential of your home equity while offering peace of mind and financial flexibility. So, whether you want to enhance your retirement, manage debts, or enjoy the fruits of your hard-earned home equity, a reverse mortgage may be the key to achieving your financial goals.
» Get current reverse mortgage rates in real-time here.
Reverse mortgage basics6 Disadvantages of Home Equity Line of Credit (HELOC)As of the second quarter of 2023, household debt in the US rose to $17.06 trillion, with Home Equity Line of Credit (HELOC) debt accounting for $340 billion. One of the most frequent reasons a homeowner secures a HELOC is that they seek to borrow money against their home without having to refinance their existing mortgage loan while remaining flexible and not having to advance all the funds immediately.
Typically, a HELOC has a variable interest rate and interest-only monthly payments during the draw period, while a home equity loan usually has a fixed rate and is subject to principal and interest payments over a specified period of time. While some of this may sound attractive to those needing an extra line of credit, a HELOC is not without its challenges.
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
1. Variable interest rates are difficult to manage on traditional loans and HELOCs
Any time you have a mandatory mortgage payment due every month, an increase in your interest rate will lead to you having to make a larger monthly mortgage payment. Significant rate increases could lead to a new minimum payment that could create financial hardship and possibly result in foreclosure.
» Learn how rising interest rates impact your reverse mortgage benefits
2. Payments at the end of the draw period are steep
The minimum monthly payment on a HELOC during the "draw period" is interest only. The draw period is the predetermined time that the line of credit is open-ended and funds are available to be advanced by the borrower. Once the draw period ends, the HELOC loan will switch from interest only to either a principal and interest payment where the borrower will begin paying the loan back over a predetermined period, or the loan will result in a balloon payment. If your loan has a balloon payment, the entire balance becomes due when the draw period ends. Either option can lead to hardship if the borrower has not taken the necessary steps to pay off the loan by the conclusion of the draw period. Failure to make the new principal and interest payments or the balloon payment will result in foreclosure.
3. Your loan must be paid off before additional refinancing
You must always read the fine print when considering taking out a HELOC. Many HELOCs come with an annual fee to have the loan in place, and some even have penalties for closing the loan before a specified period of time.
» Want to refinance your HELOC? See the benefits of refinancing it into a HECM
4. Reduced net worth and increased expenses
Any time you increase the amount you owe against your home, you are reducing your total net worth, as home equity is a factor in calculating an individual's net worth. This is something to consider if your business qualifications rely on net worth. Additionally, the mandatory monthly payment on the HELOC becomes a part of your monthly budget and will only increase as the outstanding balance on the line increases. Additionally, if the HELOC is not subject to a balloon payment and resets to a principal and interest payment, the mandatory monthly payment will increase substantially, which could cause the monthly expenses to become unmanageable and possibly lead to foreclosure.
5. Greater flexibility leads to increased risk
Although a HELOC gives the homeowner lots of flexibility to spend the money as they wish, they must be conscious of spending the available funds. A lender or bank may approve a borrower for a HELOC in an amount that is more than is ultimately needed. A HELOC can be a great tool if used prudently, and funds are spent on necessary items or home improvement rather than leisure and entertainment.
6. Your line of credit is not guaranteed
The lender or bank can freeze your access to the line of credit or eliminate the available funds at their sole discretion. If the housing market is in a bad cycle and property values are down, the lender or bank can temporarily or permanently cut off access to your line of credit, creating a significant hardship if you are counting on access to those funds.
Consider alternative financing options
Before securing a HELOC, exploring a full cash-out refinance of one's regular first mortgage is advised. A new first mortgage can be obtained with a fixed interest rate, whereas a HELOC cannot. With a cash-out refinance of your existing first mortgage, you can safely calculate and know your new monthly payment, eliminating the surprises associated with a HELOC.
Additionally, for those age 62 or older, a regular reverse mortgage may be the best long-term solution. While the loan would be more expensive to establish, the line of credit would be guaranteed, and the unused funds would grow in availability.
» Learn more: See our HELOC vs reverse mortgage comparison
Reverse mortgage strategiesHow to Tap Into Home Equity Without RefinancingThe prospect of being able to tap into your home equity without having to refinance your existing mortgage is something that is appealing to many homeowners. With property values as high as they are currently, many homeowners seek to leverage their home equity. In this article, we'll discuss how that may be possible and the benefits and risks associated with accessing equity without refinancing your existing mortgage.
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
What is home equity?
First, knowing exactly what home equity is and how to determine your equity position is important. Home equity is simply the difference between your current home value minus any mortgages or liens secured against the property. For example, if you have a home worth $500,000 with total outstanding mortgages/liens of $200,000, you would have an equity position of $300,000. Your equity position is ever changing as your mortgage balance(s) go up or down and your property value either increases or decreases.
Your home equity can increase in two ways:
Paying down your existing mortgage(s). The lower the amount you owe against the property, the more equity you will have.Property value increases. If property values increase, your equity position can also increase if your balance is stagnant or decreasing.
Why wouldn't you want to refinance?
Whether or not to refinance your existing mortgage comes down to timing. What does the current market look like as it pertains to interest rates? How many years are remaining on your current mortgage? Are you planning to stay in this property for the foreseeable future, or are you likely to sell in the next few years and relocate?
These are the factors you need to consider when evaluating if a refinance makes sense:
Your current mortgage terms. Do you have a low fixed interest rate? As of October 2023, rates have reached a level they have not seen in many years. Refinancing from a low fixed interest rate to a much higher rate would not be in your best interest to access home equity because your monthly payment would increase drastically.The remaining term of your existing loan. Are you 5, 10, or even 15 years into the 30-year term of your existing mortgage? Unless you are prepared to refinance to a shorter-term loan this time around with the potential for a much larger mortgage payment, you could be facing the prospect of starting over on a new 30-year mortgage, which means you will end up paying significantly more interest over the life of your home ownership.Refinancing may not be in your best interest if you sell your home and move to a new home. A refinance usually comes with closing costs included in the transaction, increasing your loan balance above and beyond the amount of equity you are looking to extract. You will reduce the amount of proceeds you will see when you sell.
So, how do you actually tap into your equity without refinancing?
In truth, there are only two ways to tap into your home equity without refinancing your existing mortgage. Let's break that down below and review each option's pros and cons.
1. Take out a home equity loan
"A Home Equity Loan, often referred to as a "second" mortgage, is a loan subordinate to your existing mortgage. These products allow you to access equity without disturbing the existing loan you have in place or its terms. There are two types of Home Equity Loans:
Home Equity Line of Credit (HELOC)
"A HELOC is an open-ended loan program that allows you to borrow funds on an "as needed" basis. This means you do not have to advance all available funds on day one when the loan consummates. Additionally, borrowed funds on a HELOC can be repaid and then reborrowed during the draw period, which usually lasts 10 years on average.
Here's how it works:
Credit limit: When you obtain a HELOC, you are approved for a specific amount by the Lender or Bank. This is similar to the limit on a credit card. You can advance funds up to the limit on the loan.Flexible access: As noted above, you do not have to advance the entirety of the credit limit at the beginning of the loan and can advance as needed during the draw period. This flexibility allows you to minimize the interest you pay to a certain degree.Interest and repayment: During the draw period of a HELOC, your minimum monthly payment is usually interest only on a variable interest rate. Your interest owed is only calculated on the outstanding balance, not the credit limit. At the end of the draw period, the HELOC will reset, and you will begin making principal and interest payments to pay back the outstanding balance over a specified period of time, usually between 10 and 20 years. When a HELOC resets, the monthly payment will increase significantly, which can cause financial hardship if the loan is not paid off or refinanced before the reset.Revolving credit: During the draw period, you can advance and repay funds that have been advanced. Funds that are repaid become available to be reborrowed.Variable interest rate: HELOCs have variable interest rates, so your monthly payment will either increase or decrease as the market fluctuates.Secured by your home: A HELOC is not a "personal" or "signature" loan, meaning your home is the collateral for the mortgage, just like your existing mortgage. Failure to repay the loan according to the terms can lead to foreclosure.
Home Equity Loan (Closed End)
A Home Equity Loan is a closed-end mortgage that performs more similarly to a traditional mortgage. These types of loans are single disbursement loans where the entirety of the loan amount you borrow is advanced at the time of loan consummation. They usually come with a fixed interest rate where you will make payments over a scheduled period of time (5-30 years) to repay the loan in full. Like a HELOC, your home secures it, and failure to repay the loan according to the terms can lead to a foreclosure. Home Equity Loans can also come with a balloon payment feature, which, similarly to a HELOC reset feature, can present a significant financial hardship.
A balloon payment means the monthly payment is calculated based on a 20 or 30-year term, so the payment is reasonable. Still, the entirety of the loan balance is due in a time period lesser than that amount, with some being as short as 5 years. If you have a plan to pay that loan off before the end of the balloon term, you could avoid foreclosure.
ProsYou can access your home equity without refinancing your existing first mortgage.HELOCs often have very little in closing costs to obtainHELOCs allow you to access funds as you need themHELOCs only have interest payments on the outstanding balance and not the entire credit limitConsHELOC interest rates can change over time, increasing your monthly paymentWhen a HELOC resets (draw period ends), your monthly payment will increase significantly, which can cause financial hardshipHELOC funds are not guaranteed, and the loan can be frozen or reduced due to unfavorable market conditionsHome Equity Loans may have a balloon payment feature, which can cause financial hardship
2. Sell your home
Outside of taking out a Home Equity Loan, the only other way to access your home equity without refinancing is to sell the home. This may be a non-starter for many homeowners who have no desire to relocate from their current home. However, selling your home can access your home equity for those looking to downsize or move to a different location.
When it comes to selling your home, there are several factors to consider and questions you will have to answer:
How much will you receive in proceeds from the sale? When you sell your home, you will incur costs for real estate commissions, closing costs, and the costs associated with moving. Will you be able to buy your new home outright, or will you need financing in the form of a mortgage to bridge the gap? Suppose a downsize or relocation cannot be funded solely by the equity in your current home. In that case, you must look into financing options to accomplish that move, which could lead to similar or even more monthly expenses than your current home.Will there be any tax liabilities? You should always consult your tax advisor when it comes to these matters.
Beware of potential pitfalls and red flags
Overborrowing
A lender or bank may approve you for a HELOC in an amount greater than you ultimately need. It is vital that a homeowner not advance more from their HELOC than they can afford to repay when the loan reaches the reset period. One such pitfall is spending line of credit funds on non-essential or frivolous purposes.
Failure to make payments
Whether you have a HELOC or a closed-end Home Equity Loan, you have mandatory monthly payments that you must make to keep the loan in good standing. Failure to do so can lead to the lender foreclosing on the property.
Balloon payments
Some home equity products may include a balloon payment provision. This means that the entire loan balance becomes due after a specific period of time. It would be best if you planned for this to avoid financial difficulties.
Unscrupulous lenders
Be cautious of predatory lenders offering home equity products with unfavorable terms or excessive fees. Always work with reputable lenders and seek financial advice from trusted professionals or counselors.
Maximizing home equity for financial success
When done correctly, unlocking your home's equity without refinancing can be a smart financial move. By exploring your options, understanding the risks and benefits, and making informed decisions, you can access your property's hidden wealth while maintaining your existing mortgage structure.
» HELOC vs reverse mortgage: What's the smarter choice?
Traditional refinance, home equity loan, and selling your home not an option?
For homeowners age 62 and older, you can consider refinancing your existing mortgage to a reverse mortgage. A reverse mortgage is a loan that works in "reverse" of a traditional or "forward" mortgage. With a reverse mortgage, there are no mandatory monthly mortgage payments. Instead, the interest on the loan is added to the outstanding loan balance so that the balance will increase over time. A reverse mortgage does not become due until the loan reaches maturity. Maturity events on a reverse mortgage are:
The passing of the last surviving borrower or eligible non-borrowing spouseFailure to pay the property taxes or homeowners insurance premiumsMoving out of the property permanentlySelling the home
Before considering a reverse mortgage as an option, you need to know the basic requirements to be eligible to apply. Those are:
You must be at least 62 years of age. If you are married, only one spouse must be 62 in most statesThere needs to be ample equity in the propertyYou must live in the property as your primary residence
ProsThe government insures the Home Equity Conversion Mortgage (HECM) through HUD, and the proceeds are guaranteed. Reverse mortgage proceeds, whether in a line of credit or received on a monthly payment plan, cannot be frozen or reduced due to market conditions Unused funds in the Line of Credit are subject to a line of credit growth rate, allowing the available funds to the borrower to increase over timeNo mandatory mortgage paymentConsHome Equity can decrease over time as interest is added to the balance due to not having to make a mortgage paymentHigher closing costs on average when compared to a traditional or "forward" mortgageProperty must remain your primary residence. If you wish to move, you must pay off the reverse mortgage or sell the home
A reverse mortgage could represent a win-win situation for the right homeowner—payment relief by eliminating the current mortgage while simultaneously tapping into home equity. The amount of equity that can be tapped ultimately is determined by the age of the youngest borrower or spouse and where interest rates are at the time of application. The older you are, the higher the percentage of the home value you can borrow—additionally, the lower the interest rate, the higher the percentage.
Reverse mortgage strategiesCan Seniors on Social Security Get a Mortgage?Let's get straight to the point: Yes, seniors on Social Security can get a mortgage.
While you may have discredited yourself here, the law prevents lenders from denying your application based on your Social Security status. And while a reverse mortgage is available for people age 62 and over, seniors can get any loan for which they qualify.
This means that mortgage qualifications for seniors on Social Security are the same as for any other applicant.
Qualifying factors include:
Financial eligibility and incomeCredit history and scoreDebt-to-income ratio
Note that your Social Security may be grossed up by 25% if you qualify for a mortgage. This increase is meant to compensate for non-taxable income, which Social Security is considered to be.
But this is still harder for most borrowers to qualify for than a reverse mortgage because the reverse mortgage uses a different method. Instead of employing those debt-to-income ratios mentioned, reverse mortgages use a residual income method. When you consider that there are no monthly housing payments with a reverse mortgage, the qualification gets much easier, but we will get back to that.
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
Factor 1: Financial eligibility and income
A lender will break down your income into percentages to assess whether you can afford the mortgage. The general rules to qualify for a mortgage are:
28% for housing 38% for all other qualifying expenses
However, each lender and program may have variations in these percentages. Occasionally, a lender will allow up to a 48% total debt-to-income ratio to qualify.
That 28% under normal circumstances means that if the mortgage payment is $1,200 per month, your monthly income must be roughly $4,286 to qualify for that mortgage. There is no housing payment with a reverse mortgage, so there is no ratio to compute. For a single person in CA, your income must be at least $589 above and beyond any debts you owe, including property charges (taxes and insurance). If you have no debts, that might be as low as $1,000 to qualify if your taxes and insurance are low.
So, while a senior may very well qualify for a standard or forward loan, their chances of qualifying for a reverse mortgage are usually much better.
The best practice is to fully discuss your specific situation with a lender to get advice and make an informed decision.
» These are some of the best reverse mortgage lenders available
Factor 2: Credit history and score
To qualify for a mortgage, you must exhibit a credit history and score that proves you have the capability and means to pay your debts in a timely manner. The following adage is always applied:
The way one pays their bills in the past is indicative of how they will perform in the future.
It would be best if you usually had a minimum credit score 620 to qualify for a forward loan. However, other factors like income, assets, and collateral will play into the final decision. Any score over 700 is very favorable and will go a long way toward qualifying for a mortgage. Occasionally, lower scores (to 580) are considered, but that's in rare cases. While reverse mortgages conduct a credit review and a financial assessment, credit scores are not considered in the final analysis.
Factor 3: Debt-to-income ratio
The potential lender will review and compare your total debt to your total income before taxes. The ratio is then presented as a percentage. For example:
(Total Monthly Debt Payments / Gross Monthly Income) x 100= ($1,500 / $4,000)= 37.5%
In this example, your debt-to-income ratio is 37.5%, which means you use 37.5% of your gross monthly income to cover your debt payments. A lower ratio is generally more favorable for a standard or forward loan because it indicates you have more financial flexibility to take on new debt obligations.
However, let's compare this to a reverse mortgage. With that same income, you could have monthly debts of $3,000, including the property charges, and still qualify for the reverse mortgage (remember, there is no mortgage payment, and you only need $589 per month in the highest region to qualify - some areas it is even less).
Take a look at the numbers:
(Total Monthly Debt Payments, including property charges)= ($3,000*)Incl. Taxes, insurance, utility factor, car payments, credit cards, other monthly credit installments, student loans, etc.(Total Monthly income minus all charges equals residual income.)= ($4,000 - $3,000) = Residual Income $1,000 (must be greater than $589 for a single person
This borrower qualifies for the HECM reverse mortgage, but their ratio for a forward loan would be 75% and too high ($3,000 / $4,000).
However, each lender may have room to deviate from ratio guidelines in their programs, 75% is most likely too high for any forward lender. This is why reverse mortgages are a viable alternative for seniors on fixed incomes like Pensions and Social Security.
Want to make sure your mortgage calculations are correct? Try the Reverse Mortgage Calculator by ARLO™ to get a quote. Compare different mortgage programs side-by-side to find the best option.
Types of mortgages available to seniors
All mortgage types are available to seniors. This includes:
FixedAdjustableFHAConventionalBank specific loan programs
The HUD reverse mortgage is also available to seniors who receive social security and pension incomes and often provides better financing options than programs using qualification guidelines.
Down Payment Assistance programs sometimes offer special assistance if you're on a fixed income. Perhaps you can't save for a down payment, or you need to retain income-producing assets. Alternatively, FHA reverse mortgage loans can also be attractive because they're somewhat easier to qualify for and do not require the borrower to make a monthly mortgage payment (borrowers are responsible to pay their taxes and insurance in a timely manner).
Advice for seniors considering a mortgage
You need to ask many questions about your potential lender because it's important to understand the loan process, program requirements, closing costs, and interest rates before committing to the loan. Try:
Obtaining and comparing an estimate of closing costs as fees can vary between lenders.Focusing on one lender once you're satisfied with potential costs and rates.Reviewing your credit report to make sure there are no mistakes on it.Don't get hung up on just one initial fee (i.e., appraisal cost) so that you miss others that add up to much more over the life of the loan.
There are numerous ways to look at your credit report online with no credit score ramifications. It's best to make any adjustments before going to a lender, and making changes after a lender has seen it can make qualifying harder.
» What if you don't qualify? Explore your options
Taking the leap: Seniors and mortgage approval
Seniors on Social Security have the opportunity to secure mortgages, especially since they're backed by legal protections. Your mortgage qualifications closely mirror those of other applicants, including financial eligibility, credit history, and debt-to-income ratios when you are looking at standard forward loans. We encourage you to explore various mortgage options, seek lender guidance, and diligently review your financial profiles while enjoying the prospect of homeownership during retirement. Get the facts on all loan types, including both forward and reverse mortgages, and then choose the loan type that is right for you and helps you to achieve your goals best.
Reverse mortgage strategies10 Tips for Seniors on Fixed Income to Help Save MoneyAs expenses increase, those on fixed incomes will feel increasing stress levels. Additional expenses such as medications and healthcare can also increase as someone ages. At the same time, a mortgage, car payment, or credit card debt may have been established when income was steady and now can't be afforded with the current limited fixed income. In fact, around 44% of Americans on fixed incomes are still paying off their mortgages.
Seniors are looking at less ability to earn; jobs may be fewer, and seniors may simply not be able to work as much as they once could—younger age groups can usually get new and even multiple jobs to handle their debt load successfully. Thus, seniors must plan to adjust their debt loans early as fixed income begins. However, you can save money in many ways to help widen the gap between your fixed income and your monthly expenses.
» Want a higher monthly income without saving money? See our ultimate guide to reverse mortgages
Meet the expert
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
4 ways to save money on essentials
1. Reduce your utility bills
Implementing the following strategies can help reduce the typical utility costs such as water and electricity:
Keep your thermostat closer to outdoor temperaturesReview the viability of solar panels with state government grantsWater lawns less or recycle rainwater with storage tanksLower shades during the day in the summertime to lower inside tempsDo fewer laundry loadsBe sure to use the dishwasher only when full and run the quickest settings
» Learn more: Reducing utility bills with reverse mortgages and solar panels
2. Use government-funded healthcare
Many states offer specific medical cost reduction programs to seniors. Check your eligibility for special programs through Medicare to receive help with medications and over-the-counter personal care items. Your local clinic can help you take advantage of these particular plans.
» Don't get caught out: Learn how reverse mortgages can affect Medicaid and SSI benefits
3. Use money-saving grocery hacks
There are many ways to save money on groceries, from magazine or newspaper coupons to buy-one-get-one-free deals. Additionally, Medicare and other state-lead programs may assist with groceries, while food banks and churches can also help you get many essential grocery items.
4. Use less private transport
Most counties provide some kind of public transportation for seniors. Giving your municipality a call can be a valuable source of information. At the same time, the clinics and churches that often help with groceries may also have transportation programs for essential trips.
4 money-saving housing and lifestyle considerations
1. Find more affordable housing
Placing a call to your city and/or county offices can be the first step to finding special housing options, and many non-profit agencies specialize in affordable housing.
2. Explore less costly leisure activities
Usually, senior citizen centers like YMCAs in most areas offer many free activities planned especially for seniors.
3. Consider downsizing
Downsizing can be difficult at first, but it's important to remember that a better quality of life is the goal and can outweigh the negative aspects of selling or giving away some of your material possessions.
You might enjoy the new situation once you make the move and find that your day-to-day life is more manageable! Although the cost of some centers can be very high, financial assistance programs like Medicaid can help with funding and administrative challenges.
4. Make a budget and stick to it
A budget can help you ensure that your basic needs are always met while showing you exactly how much you have to spend on your amenities.
When creating your budget, remember these three rules:Before allocating any funds, explore all the financial assistance available for housing, drug costs, and groceries.Take care of your needs before your wants.Allocate some of your funds to leisure, and don't spend any more!
2 ways to ensure long-term financial security
1. Senior-suitable investment opportunities
One of the best investment strategies for seniors is using your home's existing equity. Leveraging strategies like reverse mortgages can give you access to extra cash that can be invested in profitable markets like real estate or used to pay off high-interest debt, helping you to continue living in your home with less stress.
Additionally, low-stress part-time jobs—like librarians or non-profit agency work—are often available to seniors and can supplement a fixed income.
» Learn more about the different reverse mortgage payment options
2. Be wary of scams
Unfortunately, seniors are generally more susceptible to falling victim to the rapidly evolving nature of scams. Avoiding them all can be difficult, but here are some tips:
Banks and mortgage companies will never ask for personal information such as account or social security numbers; only scammers will.Emails are an easy access point for scammers. You should ignore all emails with poor grammar that come from generic domains. Anyone (including scammers) can create a Gmail address for free, while professional companies will pay for a custom domain that matches their brand. Check the sender's email address from your Gmail account; a legit one might say "accounts@wellsfargo.com" while a fake one might say "accounts.wellsfargo@gmail.com".If you're unsure about the person you're in contact with, you don't have to continue the conversation! There's nothing stopping you from hanging up the phone and contacting a relative who can help. A legitimate business may contact you later, allowing you to research their information or check with knowledgeable relatives. At the same time, a scammer will likely move on to the next victim instead.
Don't be afraid to ask for help!
One of the biggest pitfalls you might face when trying to save money is trying to manage it yourself when you need help. Dozens of agencies, churches, and programs specialize in helping seniors on fixed incomes better manage their funds.
» Need more info? Reach out to a qualified reverse mortgage lender or continue your journey learning how reverse mortgages work.
