How a Reverse Mortgage Works: Explained in Simple Terms!

November 15, 2023

A reverse mortgage is a loan that allows seniors to borrow against the equity in their home without making monthly mortgage payments. The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), a program insured by the Federal Housing Administration since 1988.

The amount of funds available from a reverse mortgage is based on the age of the youngest borrower or spouse, home value, and current interest rates. Funds received are tax-free and may be used for virtually anything. You may take funds in a lump sum, a line of credit, monthly payments, or a combination thereof.

The loan must be repaid when the last surviving borrower dies or leaves the home permanently or if they stop paying property taxes or homeowner’s insurance. The borrower always owns the home and can repay the loan at any time, such as with a refinance or upon sale or in the case of a sale upon the passing of the borrower(s), any remaining equity will go to the borrower’s heirs or beneficiaries, as specified in their will or trust or court order if the borrower left no instructions.

Suppose the loan balance exceeds the home value at the time of maturity. In that case, no debt will pass to the borrowers’ heirs, as reverse mortgages are non-recourse loans. The heirs can still pay the loan in full at 95% of the home’s current value if they want to keep the property, even if the balance owing is higher.

How reverse mortgages are different from traditional loans

Reverse Mortgage vs. Traditional Mortgage - Insights by Expert Cliff Auerswald

A reverse mortgage differs from a traditional or “forward” loan because it operates precisely in reverse. The traditional loan is a falling debt, rising equity loan. A reverse mortgage is a falling equity, rising debt loan. In other words, as you make payments on a traditional loan, the amount you owe is reduced. Therefore, the equity you have in the property increases over time.

With the reverse mortgage, you make no regular payments. So, as you draw out funds and interest accrues on the loan, the balance grows, and your equity position in the property becomes smaller. There is never a payment due on a reverse mortgage or a prepayment penalty. You can make a payment at any time, up to and including payment in full, without penalty, even though no payment is due.

Some borrowers may choose to repay some or all the accruing interest or whatever amount they desire. The choice is up to the borrower, depending on their goals.

How much are you eligible to receive

The money you can receive from a reverse mortgage generally ranges from 40-60% of your home’s appraised value. The older you are, the more you can receive, as loan amounts are based primarily on your life expectancy and current interest rates.

With a reverse mortgage, several factors dictate the loan amount, including:

The age of the youngest borrower
Value of the home or the 2023 lending limit (whichever is less)
The interest rates in effect at the time

Also factoring into the loan amount are the following:

Costs to obtain the loan (which are subtracted from the Principal Limit or available loan amount)
Existing mortgages and liens (which must be paid in full)
Any remaining money belongs to you.

Tip: Calculate how much you can get by using ARLO’s Reverse Mortgage Calculator

How does your age affect the amount available?

You must be at least 62 years of age for a reverse mortgage. The Principal Limit of the loan is determined based on the age of the youngest borrower because the program uses actuarial tables to determine how long borrowers are likely to continue to accrue interest.

If there are multiple borrowers, the age of the youngest borrower will lower the amount available because the terms allow all borrowers to live in the home for the rest of their lives without having to make a payment.

Of course, there will always be exceptions. Still, the premise is that a 62-year-old borrower can accrue more interest over their life than an 82-year-old borrower with the same terms. Therefore, HUD allows the 82-year-old borrower to start with a higher Principal Limit.

Reverse mortgage payment options

There are several ways borrowers can receive funds from a reverse mortgage:

Cash lump sum at closing
Line of credit that you can draw from as needed
Payment for a set amount and period, known as a “term payment.”
Guaranteed payment for life (known as a “tenure payment”) lasts for as long as you live in your home.

In addition to these options, you can use a modified version of each and “blend” the programs. For example, a married couple in California, born in 1951 and owning a $500,000 home, may decide to get a reverse mortgage.

The couple would like $100,000 at closing to improve their property and fund a college plan for their grandchild. They have a more significant social security benefit that will begin in four years. Until then, they would like to increase their monthly income by $1,000.

They can take a modified term loan with a $100,000 draw at closing and set up a monthly payment of four years of $1,000 per month. That would leave an additional $125,000 in a line of credit available.

In addition, they would receive a guaranteed growth rate on their unused line of credit funds.

How the line of credit growth rate works

In the past, many considered the reverse mortgage loan a last resort. Let us consider a borrower who is savvy and is planning for her future needs. She has the income for her current needs but is concerned that she may need more later.

So, she obtains her reverse mortgage and has the same $200,000 line of credit available to her after the costs to get the loan.

Her line of credit grows at the same rate on the unused portion of the line as what would have accrued in interest and mortgage insurance premiums had she borrowed the money.

As the years go by, her credit line increases, meaning if she one day needs more funds than she does now, they will be there for her.

If rates do not change, here is what her access to credit looks like over time:

10 years: $350,000
15 years: $500,000
20 years: $660,000

Remember that is if rates do not change. If interest rates go up 1% in the third year and one more percent in the 7th, after 20 years, her available line of credit would be more than $820,000.

Of course, this is not income; if you borrow the money, you owe it, and it will accrue interest. You or your heirs must pay it back when the property sells. But where else can you ensure you will have between $660,000 and $800,000 available in 20 years?

Lump sum restrictions

The fixed-rate requires you to take a lump sum draw. This means you must take the total draw of all the money available at the loan’s close. You cannot leave any funds in the loan for future draws, as no future draws are allowed with the fixed rate.

Since borrowers experienced a much higher default rate on taxes and insurance when 100% of the funds were taken at the initial draw, HUD changed the method by which the funds would be available to borrowers, which no longer allows all borrowers access to 100% of the Principal Limit at the close of the loan.

Tip #1. Shop interest rates & closing costs

As for pricing, reverse mortgage lenders are the ones who set the rates and the fees at which the loans will closed. This does not mean that they can do anything they want. Most of the time, the pricing is driven by the secondary market – the value of the loans when they are ultimately sold to investors.

When the loans are very valuable, lenders have much more options to enhance pricing to consumers than when the market is not actively purchasing the loans. But the only way for consumers to know is to shop around. And don’t just compare a couple of fees.

Look at the whole picture. Some people mistakenly go with one lender because they see one fee, like an appraisal fee of $100 less, when the lender charges a margin of .50% higher.

The margin is added to the index to determine the rate at which interest accrues and a half percent higher margin can cost borrowers tens or thousands of dollars over the life of a loan, so it is important to look at everything and not be stuck on one small feature.

Education is key. Knowing your goals will help you procure the best loan for you. A very low margin will accrue the least interest once you use the line. Still, if you are looking for the most significant line of credit growth, a higher margin grows at a higher rate.

Getting the least fees on your loan may not help if you plan to be in your home for 20 years if, in those 20 years, the interest will cost you tens of thousands of dollars more, thus ruining your goal to preserve equity.

Knowing what you want from your reverse mortgage will help you choose the best option to meet your long- and short-term goals.

Tip #2. Weigh the costs vs. benefits

As I stated earlier, we do not recommend reverse mortgages for everyone. If the loan does not meet your needs and you will still be scraping to get by, you must face that fact before you choose to use your equity.

If the loan doesn’t make your life easier and you will have to sell in a few years, consider making that move before you begin to erode your equity. The next move becomes that much more difficult.

The reverse mortgage is supposed to be the last loan you ever need. If you know you are not in your forever home, consider using your reverse mortgage to buy the right house instead of using it as a temporary solution — one that is not a proper solution at all.

By and large, most borrowers can benefit when they research and plan carefully. You need to know how these loans work, your plans, and which options will best achieve your goals.

Top FAQs

How much can you get from a reverse mortgage?

The money you can receive from a reverse mortgage loan is based on the youngest borrower’s age, current interest rates, and your home’s appraised value. The Loan to Value on a reverse mortgage is the Principal Limit Factor. Those percentages vary with age and rate and are based on actuarial tables. The older you are, the higher the loan to value will be. Similarly, the lower the interest rates, the higher the loan-to-value.

Who owns the house on a reverse mortgage?

You always own your home when you have a reverse mortgage. You are not selling your property to the lender for a reverse mortgage. You are just taking out a loan that works differently than a traditional or “forward” loan.

How does a reverse mortgage get paid back?

A reverse mortgage does not require monthly mortgage payments. Therefore, the loan is paid back when it reaches maturity or if the homeowner decides to sell their home or pay it off through other means. When a reverse mortgage borrower passes away, the heirs to their property can either pay off the balance to keep the property or sell the home to pay off the loan balance. Suppose an heir inherits the property with a balance that exceeds the current market value. In that case, they can choose to pay the loan in full at 95% of the current market value, even when that is less than the amount owed, if they want to keep the property but are not required to pay back the loan balance or even attempt to sell the property if they do not wish to. They can sign the property to the servicer to handle it from there. The mortgage insurance fund covers any loss on that sale.

Can I sell my house if I have a reverse mortgage?

Yes, you can sell your house anytime when you have a reverse mortgage, and there is no prepayment penalty.

Can you lose your home with a reverse mortgage?

Yes. When taking a reverse mortgage, you agree to maintain property charges, such as taxes and homeowner’s insurance, and occupy your home as your primary residence. (Defined by leaving at most six months). If you fail to maintain the loan agreement, HUD requires the servicer to call the loan due and payable.

Is a reverse mortgage a good idea?

Reverse mortgages are not inherently good or bad. The decision to take a reverse mortgage should always be considered an individual approach weighing long-term suitability. Suppose you can stay home for the foreseeable future, and the reverse mortgage allows you to live more comfortably. In that case, the reverse can be a great idea! If you have plans to move later in retirement, consider alternatives such as the reverse mortgage for a home purchase or other home equity loans.

Why should you not get a reverse mortgage?

You should wait for a reverse mortgage if you want to sell your home soon. The reverse mortgage is not intended to be a short-term financing instrument. The upfront costs for mortgage insurance, etc., make it less appealing to use in that manner.

What are the disadvantages of a reverse mortgage?

A reverse mortgage loan has some disadvantages compared to other loan products. Suppose you obtain a reverse mortgage and want to move out of the property and retain it as a rental property. With a reverse mortgage, the property must be your primary residence. In that case, you must refinance or pay off the reverse mortgage. Another downside to the reverse mortgage is that the closing costs are higher than a traditional loan because of the mortgage insurance on the HUD-insured HECM product.

Summary:

Reverse mortgages allow seniors to borrow against the equity in their homes without making monthly mortgage payments. The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which the Federal Housing Administration insures.
To qualify for a reverse mortgage, you must be at least 62 years old, and the Principal Limit of the loan is determined based on the age of the youngest borrower.
The amount of funds available from a reverse mortgage is based on the age of the youngest borrower, home value, and current interest rates.
The loan must be repaid when the last surviving borrower dies or leaves home permanently or if they stop paying property taxes or homeowner’s insurance.
There is never a payment due on a reverse mortgage or a prepayment penalty. Any remaining equity will go to the borrower’s heirs or beneficiaries.

ARLO also recommends these helpful resources:

America's #1 Rated Reverse Lender Celebrating 19 Years of Excellence.

TALK TO OUR HUMAN EXPERTS TOLL FREE: 800-565-1722

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64 Comments on this Article

Jeff S.
March 7th, 2023

Hello ARLO,

I don't understand the mechanics of how a reverse mortgage works in relation to the line of credit and funding. I understand that there's a lender, a servicer, an insurer, and a pool of loans, and I am quite sure it all works just fine and is secure. Still, I have no idea what role your company plays other than origination, how I interface with the servicer (if at all), where the money resides until future takedowns on my part, and where that money comes from and goes to the GNMA pools, and when, nor whom HUD is insuring. I'm reading up on reverse mortgages and am looking forward to your explanation!
Reply to Jeff
- ARLO™
  March 7th, 2023
  
  Regarding the actual mechanics, the loan is not "funded" into an account somewhere and then drawn on as the borrower needs funds. If that were the case, those funds that were unused would-be accruing interest from the start, and funds that have not yet been borrowed do not accrue interest by the borrower.
  
  The lender funds any future advances from their warehouse lines of credit, much like the initial loans are funded. As a GNMA issuer, the lender constantly issues new securities as they pool new loans they close. The future draws of existing loans give them the liquidity to continue to pay down their warehouse line of credit for additional loans and draws (as we do when we fund loans and then pay them down to fund new loans).
  
  Loans, including reverse mortgages, are assets on a lender's books. If a lender cannot continue to service the loan for any reason, those loans have a value that can be sold to other viable investors or, in the case of reverse mortgages, can be assigned to HUD if need be. At any rate, whether sold to another lender or assigned to HUD, future draws are handled the same way under the same terms, with new advances made from a warehouse line of credit and then new securities issued on an ongoing basis. With the full faith and credit of the US Government, borrowers are protected.
  
  This is important to stress because when borrowers choose to take a traditional line of credit from a bank (i.e., HELOC) or even a reverse mortgage from a proprietary or jumbo investor, those funds are not insured or guaranteed to be available. While it is true that you only ever owe what you borrowed, and if the investor of one of those products were to go bankrupt or freeze your line due to a loss of liquidity, etc., you would still only owe the money you actually borrowed and any accrued interest and not the entire line if you had not borrowed all of it. Still, you also have no guarantees on the private programs that those funds will be available.
  In other words, you don't lose money if the line were to disappear on those programs, but you do lose access to funds you thought you had secured if the program becomes insolvent (this happened recently on a jumbo line of credit program). Unlike the HUD-insured program, they do not have the full faith and credit of the US government to guarantee funding future draws.
  Reply to ARLO
Donald S.
January 8th, 2023

This site gave me every thing I needed to know about making a decision on whether or not get a reverse mortgage, very well done. Thanks ARLO!
Reply to Donald
- ARLO™
  January 12th, 2023
  
  Thanks Donald. We wish you the very best with your future endeavors!
  Reply to ARLO
Steve R.
November 17th, 2022

Can you refinance a reverse mortgage and get additional funds if the property has appreciated and there is sufficient equity?
Reply to Steve
- ARLO™
  November 23rd, 2022
  
  Hello Steve,
  
  You cannot increase the amount available to you above and beyond the growth of the line of credit per the terms of the credit line growth on the existing loan, but you can refinance a reverse mortgage. Borrowers can refinance and many have over the years taking advantage of lower interest rates, higher property values and HUD program changes that increased the maximum lending limits. The amount you can get is not automatic though.
  You need to know that the loan will be underwritten at the time you wish to refinance, and you need to be able to qualify for the loan just as any other borrower would at that time looking for a new loan. If your income, credit, or your property would not qualify for a reverse mortgage at that time, even though you currently have a reverse mortgage, you would not necessarily qualify for a new loan.
  
  HUD also imposes requirements on borrowers and lenders for certain thresh holds that the new loan must meet to be eligible for the borrower to be able to refinance the existing loan with a new reverse mortgage. The new loan is called a "HECM to HECM refinance" and it must benefit the borrower sufficiently to warrant the costs or HUD will not allow the lender to place the financing.
  This was enacted to prevent some unscrupulous originators from preying on older borrowers and talking them into refinancing their reverse mortgages for little or no benefit and paying high fees including origination fees to do so. But assuming the refinance is beneficial to you, and you do meet the current parameters for the loan at the time, you can refinance your reverse mortgage after 18 months. The only other thing you need to keep in mind when considering a refinance is that you cannot refinance the loan without compelling reasons why it should be done as a benefit for you that you really need.
  There is a minimum time limit you must wait between the time you close one loan and can take another intended to protect borrowers from being enticed to refinance the loan too quickly which would not be beneficial to their interests. Excessive and rapid refinancing is a detrimental practice known as loan flipping which generally benefits the loan originator who participates in such practices and not the borrower.
  Reply to ARLO
Dianne
October 29th, 2022

Hi ARLO. Can I make a new home purchase with a reverse mortgage loan? If so, would I be required to make a down payment? What if I built something? Thank you!
Reply to Dianne
- ARLO™
  November 4th, 2022
  
  Hello Dianne,
  
  Yes, reverse mortgage borrowers do make down payments under the HECM for purchase program. The benefit amount of the loan is determined the same as the refinance program and is based on the age of the youngest borrower, the interest rates in effect at the time, the purchase price of the home or the appraised value (whichever is less) and the HUD lending limit for the area if that is less than the purchase price or the appraised value (currently $970,800). Since the borrower(s) make no payments on the loan for as long as they continue to live in the property as their primary residence, the equity position of the borrower is strong at the start of the loan.
  
  The good thing still is that even though borrowers need to come into closing with a substantial amount of cash, it is still much better than having to pay for the house in all cash to avoid a monthly payment. This allows many buyers to purchase more/newer homes than they might have been able to pay 100% cash to own a home and not be required to pay a monthly mortgage payment. And in many cases, it has allowed borrowers to hold on to cash from the sale of a previous residence, not having to use all their proceeds to purchase their next house.
  It will not allow borrower to get into a home with no money down but that was never the intent of this loan. If you build something, and you are seeking the loan after the property is completed and you move in, it is no longer considered a purchase transaction and you would be looked at as a refinance transaction.
  Reply to ARLO
Paula W.
July 21st, 2022

Hello Arlo,

I own my home and a conservative value would be $250,000. I want to get less than $30,000 with a reverse mortgage. Would I still have to get an appraisal done and would the process still take up to 45 days?
Reply to Paula
- ARLO™
  July 21st, 2022
  
  Hello Paula,
  
  Reverse mortgages work a little differently than forward loans. With a reverse mortgage, you receive a Principal Limit (maximum loan amount) for which you are eligible to draw and you can take any amount up to that maximum benefit any time over the life of the loan as long as you live in the home and meet the loan requirements (you live in the home as your primary residence and pay the property charges like taxes, insurance and HOA payments if any on time).
  
  So, let's just say for arguments' sake that you are eligible for a reverse mortgage in the amount of $150,000 but you only want to draw the $30,000 you mention. You would still have the same line available but you would choose the draw of $30,000 and that is the amount on which you would accrue interest (plus any costs you incur to get the loan).
  Just because you did not draw the remaining funds on the line immediately, they are still available to you for the life of the loan and in fact, the amount available in the line grows over time on the unused portion of the loan. It doesn't cost you anything if you never use it and it doesn't accrue interest owed on any unused portion of the line, but it is available to you.
  
  As such, the loan goes through the same process as every other reverse mortgage. It would require an appraisal pursuant to HUD requirements and the timing of the loan depends on where you are located, how quickly things come back to your lender when requested and whether or not there are any third-party delays (i.e., the appraisal takes longer, there are liens on title that must be removed, the property has repairs that are needed, etc.).
  Some loans are closed in 30 days or less, some take longer than 45 days when issues arise that are out of the lender's hands. But the loan amount will not affect the time it takes to close the loan as every loan must meet the HUD requirements to get the FHA insurance and it cannot close until all conditions are met.
  Reply to ARLO
Kay N.
May 17th, 2022

Hello Arlo,

If I have a reverse mortgage and then the value of the home goes down in a few years do I still retain the original equity? Is a new appraisal ever required during the term of the reverse mortgage?
Reply to Kay
- ARLO™
  May 17th, 2022
  
  Hello Kay,
  
  Your "equity" is dependent upon the value of the home in relation to the amount owed on the loan. So, you would most likely never retain the same equity. There are a number of things that could affect the amount of equity you have in the property. If the property value goes down, then the equity in the home would decrease, but that is the same with any loan or even if you had no loan at all. If the value goes up, your equity would increase. If you borrowed more of your line of credit, your equity could decrease but then, it might still increase if the value of the home increased more than the amount you borrowed and the interest that accrued.
  
  A simple way to look at this is if you have a home that is worth $200,000 and no loans on the home, you have $200,000 equity. If the house decreased in value by $50,000, you now have $150,000 in equity. In this example, you never borrowed a dime but with the decrease in value, you did not retain the same equity. On the other hand, if you borrowed $50,000 from a loan and your home also went down in value by $50,000, your equity is now $100,000 (this doesn't include any interest or other components to loans, just the principal withdrawals). But this would be true with any loan, not just a reverse mortgage. Your equity in the home is just the value minus any loans or liens outstanding against the property.
  
  With a reverse mortgage though, there are no future appraisals to determine if the value of the home is still at or above the original appraised value to determine if you can still access the original loan amount as is the case very often with loan products like Home Equity Lines of Credit (HELOC). Some credit programs do require additional appraisals later if they feel that the value has dropped and they can also freeze the line so that you no longer have access to the funds if they feel that the value has dropped on the home that secures the line. This is not the case with reverse mortgages and one of the reasons they make so much sense for so many people. They cannot be frozen or reduced later just when borrowers need them the most!
  Reply to ARLO
  - Evelyn
    July 20th, 2022
    
    Can I obtain a reverse mortgage without naming "heirs"? While I do have 2 adult children, they live in a different state than I do and would have no interest in living nor owning my current home. Or do they automatically become "heirs"?
    Reply to Evelyn
    - ARLO™
      July 25th, 2022
      
      Hello Evelyn,
      
      You do not need to name any heirs to obtain a reverse mortgage. After all, some people have no heirs and that does not prevent them from getting the loan. The reverse mortgage process does ask you to provide an alternative contact which can be a relative, a neighbor, a pastor at your church or anyone you choose. Your alternative contact is someone you authorize the lender to contact if they are unable to reach you to ask if everything is ok (and maybe to get to check on you in some cases).
      
      Generally speaking, heirs are the people who will inherit your property and are your living relatives (children, descendants or other close relatives). But sometimes someone becomes an heir when you or the court makes them an heir, even if they are not related. Most people decide specifically who will be the person(s) who will inherit that individuals' possessions after they pass by naming them in a will or other document.
      If the person dies and has not named their heirs, then the court will do so and usually does based on the laws in that state by relationship to the deceased individual through a probate hearing. Different states have different rules and if you are concerned about who will inherit what, you should probably visit an estate attorney and have a will draw up while you still able to direct your own affairs.
      Reply to ARLO
Elizabeth S.
April 16th, 2022

Hi Arlo,

We owe $442,000, the property is appraised at $950,000. If we do a reverse mortgage and let's say in 5 years can no longer stay in the house and need to move to assisted living, how much approximately would we owe?
Reply to Elizabeth
- ARLO™
  April 16th, 2022
  
  Hello Elizabeth,
  
  This is a function of interest rates, how much money you borrow and what your property is worth at the time you repay the loan.
  To figure this out, you need to look at an amortization schedule and look at the balance in five years based on the amount of money you think you will need, the interest rates available and what you think your home will be worth at that time. You can use the calculator on our website at to run your numbers and then just use the numbers at the end of year 5.
  If you would like to customize your amortization schedule, once you have those numbers, please feel free to contact us and we can help you further delineate what the results would look like with different draws, repayments (if that is something you think you might want to do), different changing interest rates, etc.
  Reply to ARLO
Dot
December 17th, 2021

I have a long time partner with me, if I die how long he have before he has to vacate?
Reply to Dot
- ARLO™
  December 19th, 2021
  
  Hello Dot,
  If you took the loan as an unmarried individual and he is not also a borrower on the loan, the lender will begin the process of looking for the plans from your heirs for repayment of the loan as soon as they become aware that you are no longer living in the property (as is the case when you pass).
  If your partner is your heir (he becomes the owner of the property), it will be up to him to communicate with the lender/HUD to determine if he is going to keep the home, sell it or walk away from the property and let them take it back through a foreclosure action.
  Each of those actions could occur in different time frames but most cannot be completed in less than 6 to 8 months considering there is usually some legal work to be done with any of them to change the title, sell or foreclose and complete each process.
  If your partner is not your heir, i.e., you have children who will inherit the property, then they would also have a say in his departure at that time. Once they became the legal owner, they could extend that timeframe or seek to shorten it.
  You may wish to speak to an attorney to put your final wishes in writing so that there are no questions as to your intent if you think there could be some contention or controversy between multiple parties or between the lender and your partner.
  There are a number of things you can do to make your wishes known and to make certain that they are followed and to be sure the lender allows him to communicate with them about the loan if that is your desire and it is certainly easier to do it now while you can still communicate your intent.
  Reply to ARLO
  - Penny
    December 30th, 2021
    
    My husband is 62 but I am 59. We are both on the title and our home is paid for. Can we still do a reverse mortgage with him being the borrower? If not, can I transfer title to just him? If he passes first, would I still be able to stay in home as long as taxes are paid?
    Reply to Penny
    - ARLO™
      January 11th, 2022
      
      Hello Penny,
      
      You're in luck. You do not need to transfer title to your husband, and you can get a reverse mortgage. You cannot be on the loan and would be considered a "eligible non-borrowing spouse".
      What this means is that your husband would be the borrower on the loan and if anything happened to him, you could continue to live in the home if you continue to pay the taxes and insurance in a timely manner and maintained the home in a reasonable manner (the same rules as for the borrower).
      The one downside that you need to consider is that as a non-borrower, if anything happens to your husband, you will not have access to the loan proceeds since you are not on the loan.
      
      Of course, if you used 100% of the funds from the start to pay off an existing loan or for a purchase, that would not make any difference as there would be no additional funds available anyway. Or if you and your husband were very good about not borrowing much of the available line you may be able to refinance the loan when you turn 62 with a loan that includes both of you at that time.
      The reason I say if you do not use much of the line is because your current reverse mortgage would be accruing interest and the ability to refinance with a 62 year old borrower with a higher loan amount (whatever you draw plus any interest you accrue) could depend on how much the property had appreciated in that time or if you had used too much money and accrued interest to where it did not make sense for you to refinance in 3 years.
      Reply to ARLO
David L.
April 13th, 2021

Hi ARLO,

Can I receive a reverse mortgage if I still have a loan on the property?
Reply to David
- ARLO™
  April 13th, 2021
  
  Hi David,
  
  The reverse mortgage must be the only loan on the property. This means that the amount you receive with the reverse mortgage must be sufficient to pay off your existing loan at closing or you would need to bring in additional cash of your own to pay it off but yes, there is no problem getting a reverse mortgage on a property with an existing loan if you pay that loan off at closing.
  Any funds left over after you pay off your existing loan are yours to do with as your wish. You can leave them in a line of credit to draw from as needed, you can set up a monthly payment to yourself or you can take cash disbursements up to the full amount allowed by the program.
  Reply to ARLO
Tom
January 14th, 2021

My brother and I inherited a home from our parents, it has been my primary residence for 14 years. I now want to buyout my brother and be sole owner. Can a reverse mortgage be used for such a buyout and could he be removed as a co-borrower after the transfer of title?
Reply to Tom
- ARLO™
  January 14th, 2021
  
  Hello Tom,
  
  The answer to both questions is yes and we have done several such loans. Are you planning on transferring the title before or after you complete your reverse mortgage?
  If not until after, he will be required to also go through a lot of the paperwork and the counseling.
  If you change the title into just your name before the loan begins, your brother will not be required to attend counseling but there may be other issues depending on how much money you need to buy him out.
  I would strongly suggest you contact a lender before you do anything else to determine the cleanest way to complete the transaction.
  Reply to ARLO
Kim
November 26th, 2020

Do you still make a payment of some kind with a reverse mortgage?
Reply to Kim
- ARLO™
  November 26th, 2020
  
  Hello Kim,
  
  As the homeowner, you are responsible for your taxes, insurance, and any other assessments on your property (i.e. HOA dues if any).
  And there are no mortgage payments due for as long as you live in the home as your primary residence, but you can choose to make a payment at any time.
  There is no prepayment penalty with a reverse mortgage and so if you want to pay a payment in any amount, you may do wo without penalty but there are none required as long as you live in the home and pay the property charges on a timely basis.
  Reply to ARLO
William M.
October 27th, 2020

What happens if the last borrower dies with a reverse mortgage and the property is transferred to heirs of the estate?
Reply to William
- ARLO™
  October 27th, 2020
  
  Hello William,
  
  As far as the loan is concerned, it is always the same. The loan becomes due and payable when the last borrower on the reverse mortgage no longer lives in the property. The heirs then have a decision to make.
  If they wish to keep the home, they must repay the loan. They can do this with money they have available to them or they might choose to apply for other financing in their name (refinance the loan with a new loan in their name).
  If the heirs are of age and qualify, they may even choose a reverse mortgage of their own. Either way, once the reverse mortgage for original borrowers is paid in full, the heirs are free to do with the property as they will.
  If the home is not worth as much as is owed on the loan, the heirs have the option of paying off the loan at the lower of the amount owed or 95% of the current market value, whichever is less. This way, if the home is not worth as much as the outstanding balance on the loan, the heirs are not required to pay more than the property is worth to keep the home.
  
  The heirs may choose to sell the property. If they choose this potion, the sale will conclude just as with any other sale and the proceeds would first pay off any existing liens on the home and then be given to the sellers at closing.
  Here again, if the home is not worth the amount to pay off the existing loan, heirs should contact the lender to determine the amount they will accept on a short sale (an amount for less than the amount owed).
  
  Finally, the heirs can just walk away from the home and let the lender foreclose or perhaps even participate with the lender by Deeding the property back in lieu of foreclosure. There is no credit implication to the heirs and if the property is not worth the amount owed, many heirs do not want to be involved in a sale that will net them no proceeds.
  In any case, there is no liability to the heirs and the choice is all theirs.
  Reply to ARLO
Gary T.
October 27th, 2020

With a reverse loan, can the borrower take any amount, or does it have to be the full percentage? In other words, if I own a house worth $100,000 can I borrow $15,000 even though I could probably borrow 3 or 4 times that? I do not need nor do I want the full amount.
Reply to Gary
- ARLO™
  October 27th, 2020
  Hello Gary,
  
  The reverse mortgage offers several different options to access the available funds.
  Or you can mix the line of credit with the tenure or term options to have both a payment for life or of your choosing and that would be either a modified tenure or modified tenure. In your case, you could choose the line of credit option, draw the amount you want, and the other funds would remain in the line, available to you.
  
  If you never draw the money, you never accrue any interest on the funds and you, or your heirs do not need to repay them. You only pay back what you use (plus any interest that accrues on those funds).
  In addition, the line of credit grows in availability on the unused funds over time. This means that the longer you have funds available on the line, the more money will be available to borrow later should you need them.
  Again, if you never need them you are not required to repay them but if you ever do need them for any reason, they are always available unlike a Home Equity Line of Credit that the bank can close at their discretion or that goes into a repayment period after 10 years.
  Reply to ARLO
Ted
September 20th, 2020

What happens if you outlive your reverse mortgage?
Reply to Ted
- ARLO™
  September 20th, 2020
  
  Hello Ted,
  You can outlive the funds if you draw all of them and there are no funds left to draw, but you cannot outlive the loan.
  You can remain in the home without having to make a mortgage payment for as long as you live in the property and pay the property charges (taxes, insurance, and any other dues, etc.).
  Reply to ARLO
Brigitte J.
September 14th, 2020

Who decides on the limit amount of the reverse mortgage?
Reply to Brigitte
- ARLO™
  September 14th, 2020
  
  Hello Brigitte,
  
  The amount of the reverse mortgage benefits that a borrower receives is based on the calculations established by HUD for the program.
  The information for the value of the home, interest rates in effect, age(s) of the borrower(s) is fed into the HUD calculator and the benefit amount the borrower will receive is determined by that information.
  Then the program parameters take information such as how much you owe to determine what you can receive in the first 12 months and also your payment of your current obligations (credit history) to decide if the lender will need to set aside funds from the loan to pay taxes and insurance for the borrower.
  If you are aware of credit issues and especially late payments on taxes, insurance or mortgage in the last 24 months, be sure to tell your lender about those so that they can advise you about the Life Expectancy Set Aside (LESA) requirements.
  Reply to ARLO
Gary
September 14th, 2020

What if I want to pay off my reverse mortgage now as opposed to longer date?
Reply to Gary
- ARLO™
  September 14th, 2020
  
  Hello Gary,
  
  There is never a prepayment penalty with a reverse mortgage and so you may pay a payment of any amount up to and including payment in full at any time without penalty.
  You can make monthly payments (and at any time since there is no due date and never a late charge), you can pay quarterly, bi-monthly, semi-annually or all at once.
  It is completely up to you and there are no negative ramifications for paying at odd intervals or all at once. It is entirely your call.
  Reply to ARLO
Katherine V.
September 4th, 2020

Can you get a reverse mortgage if you have a 2nd mortgage?
Reply to Katherine
- ARLO™
  September 4th, 2020
  
  Hello Katherine,
  Any existing loans, including seconds would need to be paid off with the reverse mortgage proceeds, but you can get the loan.
  The one thing you need to remember is that if there is a new loan (less than 12 months old) that resulted in cash out of the property, first or second, the amount HUD will allow the reverse mortgage to pay off at closing is the same amount HUD allows for available funds in the first 12 months.
  If your exiting second closed more than 12 months before you apply for a reverse mortgage and you have taken no draws on the loan in the past 12 months (as in the case of a Home Equity Line of Credit), there are no restrictions and you can use up to 100% of the reverse mortgage proceeds if needed to pay off the existing loans.
  Reply to ARLO
  - ARLO™
    September 4th, 2020
    
    Hello Rashene,
    
    I would suggest at this time that you contact an attorney. Champion is correct in that they cannot give you any information about a loan that the borrower on the loan never gave then written authorization to discuss with you if you are not also on the loan.
    However, once the borrower has passed and you can prove you have title to the property, that is usually when the lender is able to begin communicating with the new owner of the property.
    I would suggest that you speak with an attorney to verify that your claim to title is in order and then have the attorney contact Champion (with your authorization) to discuss terms with them.
    Reply to ARLO
Rhonda S.
July 25th, 2020

Can you do this on a home paid? I want to make improvements to sell and move to smaller home.
Reply to Rhonda
- ARLO™
  July 27th, 2020
  
  Hello Rhonda,
  Yes, you can but I need to be honest with you. This is meant to be the last loan you will ever need, and the costs of a reverse mortgage are not low because of the mortgage insurance charged by HUD.
  Because there are no payments required, the loan is not inexpensive due to the added risk to lenders, investors. If you plan to only keep the loan for a short while, I would recommend that you look into alternative forms of financing that would be much less costly and that you would pay off when you sold the home.
  Perhaps for your repairs you could consider a Home Equity Line of Credit if the payments are manageable since you plan to pay it off as soon as the repairs are complete, and you sell the property?
  You could always consider a reverse mortgage for the purchase of your next home so that you can keep more of your cash or buy more home but I don't recommend you use the reverse mortgage for temporary financing.
  Reply to ARLO
Cathy C.
July 7th, 2020

Can you get a reverse mortgage for $10,000? That is all I am needing, thanks!
Reply to Cathy
- ARLO™
  July 7th, 2020
  
  Hello Cathy,
  
  The reverse mortgage sets the amount of the benefit for which you qualify based on your age, your property value, program parameters and interest rates at the time. This is your Principal Limit on the loan, you do not request a set loan amount based on any other factors.
  That does not mean that you must take the entire amount for which you qualify though. You can get a line of credit and choose to draw whatever amount of the line you desire so even if you had a line available of $100,000 based on the HUD calculations, you can choose to take only $10,000 and you accrue no interest on the remaining $90,000 that you did not borrow.
  
  But I would encourage you to look at other options if you do not think you would ever need more than just the $10,000. A reverse mortgage is not the least expensive form of financing available with the HUD insurance and if you only plan to use this amount, I do not believe it would be worth paying the costs for the loan for this amount (especially if you live in an area like Florida where the closing costs are also high).
  I would suggest you investigate an Equity Line of Credit or possibly a family loan if possible if this is the only amount you will ever need. If there is a chance you may need another $10,000 or more at multiple future times, then a reverse mortgage might be a good option for you or if you are also paying off a current loan but as I stated, it you are looking for only one draw of $10,000, this is not the option I would recommend.
  Reply to ARLO
Tina
June 15th, 2020

My mother is dying soon, and she did a quick claim on her house and transferred it to me. When she dies can I do a reverse mortgage on the home if I now have title?
Reply to Tina
- ARLO™
  June 15th, 2020
  
  Hello Tina,
  
  If you hold proper title, live in the property and are at least 62 years of age, you can get a reverse mortgage on the home.
  I would encourage you to check with an estate attorney to be sure everything is in order now though while mom is still able to sign additional papers if needed (if she is at this point).
  A Quit Claim Deed is not the best way to transfer title to another individual and I do not know if there may be others who also have any claim to title. Part of the process for the loan would be a title search and if there was any cloud on title, the title company would not insure the title and the lender would not grant the loan (and thus the reason why I said as long as you hold proper title).
  I would suggest that you take the steps now to be sure that you have no title issues later with an uninsured transfer via Quit Claim.
  Reply to ARLO
Vic M.
June 15th, 2020

I have two rentals on the property besides my home, can I get a reverse mortgage?
Reply to Vic
- ARLO™
  June 15th, 2020
  
  Hello Vic,
  
  The HUD reverse mortgage program will accept 1 -4-unit residential properties that meet HUD guidelines.
  If your property conforms to the zoning requirements, the other "rentals" you describe are not temporary structures, and there are ample properties that are similar to yours that have sold recently that the appraiser can use to determine a value, HUD does allow a 3 unit property.
  If you are not sure if your property will meet the requirements, we can review the parameters with you in advance and give you a preliminary opinion of the outcome.
  Only an appraisal will tell the lender exactly what they are working with, but it should be possible to determine if there are other similar sales in your area and the zoning, etc. in advance.
  Reply to ARLO
Elaine
November 27th, 2019

Does your mortgage have to be paid in full or up to date to qualify for Reverse Mortgage?
Reply to Elaine
- ARLO™
  November 27th, 2019
  
  Hello Elaine,
  
  Your loan does not have to be paid in full prior to application to obtain a reverse mortgage, but it would be paid in full with the loan. Many borrowers use the reverse mortgage to pay off their existing loans so that they no longer have monthly mortgage payments.
  HUD does qualify borrowers with a financial assessment and if you have been late on mortgage payments, or other payments for taxes or insurance on the home any time in the past 24 months you would probably be required to have funds set aside to pay your taxes and insurance or your loan may not be approved.
  The Set Aside for taxes and insurance is called a LESA (Life Expectancy Set Aside) and it can be a substantial amount if your taxes and insurance are high and you are in your early 60's, or it can be a smaller amount if the taxes and insurance are not very high and you are older.
  If you know you have late payments for any of these property related items (and that can also include HOA dues), let your lender know up-front so that they can provide you with an accurate quote of what you might expect from your reverse mortgage so you are not surprised later if a LESA is required and your proceeds are not what you thought they would be.
  Reply to ARLO
Stephen M.
November 25th, 2019

If one of the spouses dies can the other stay in the home?
Reply to Stephen
- ARLO™
  November 25th, 2019
  
  Hello Stephen,
  
  If both spouses are on the loan or one spouse is not on the loan but is an "eligible non-borrowing spouse" then yes, either spouse can remain in the home for life even after the other spouse passes with a reverse mortgage.
  The remaining spouse still must pay the taxes and insurance in a timely manner and maintain the home in a reasonable manner.
  If your spouse in not on the loan, was not married to you at the time the loan was closed or was ineligible for any other reason (wasn't living in the house, etc.), then that spouse would not have the right to remain in the property after the passing of the borrower.
  If you wish to make an ineligible spouse eligible to remain in the home, you would have to apply for a new loan under both individuals' names with both spouses on the new loan.
  Reply to ARLO
Phillip L.
November 25th, 2019

Does ARLO require an appraisal for a reverse mortgage?
Reply to Phillip
- ARLO™
  November 25th, 2019
  
  Hello Phillip,
  
  Yes, an appraisal is required on all reverse mortgage transactions.
  The appraiser is the eyes and ears of the lender and of HUD in the field and so not only is the appraisal required to determine a value but to also determine that there are no factors within the home itself or the immediate area that could impair the lender's or HUD's security.
  HUD has requirements for properties and some restrictions that there would be no way to determine compliance without the on-site inspection.
  
  There are no payments made on a reverse mortgage for as long as the borrower lives in the home as their primary residence.
  In addition to ensuring that the home meets all the current HUD requirements, the lender and HUD must be certain that the property is in a minimum acceptable condition to qualify for the loan as well and this can only be done with an appraisal and on-site inspection.
  The appraiser will conduct a complete walk through of the property, turning on all water faucets, making at least a "head and shoulders" inspection of the attic and although the appraiser is not a contractor, calling out any general instances of concern noted (roof repairs that may be needed, large cracks in the foundation, noted plumbing leaks, exposed wiring, etc.).
  While the appraiser may not be able to state whether the items noted are old repairs that were already corrected or still items of concern, the appraiser can recommend inspections by licensed professionals. But there would be no way to complete this required step without a knowledgeable individual visiting the home and therefore, the necessity for the appraisal.
  Reply to ARLO
Rosalyn
November 4th, 2019

Can I get a reverse mortgage with a bad credit score?
Reply to Rosalyn
- ARLO™
  November 4th, 2019
  
  Hello Roslyn,
  
  Reverse mortgages do not even consider the borrower's credit score. The program is not credit score driven. That is not to say that it does not consider borrower's credit history.
  HUD does have minimum credit requirements for the reverse mortgage that takes the borrower's overall willingness and ability to pay their debts and afford their home into consideration.
  If your credit score is low because you have had credit problems in the past and have not re-established credit since then, but have paid your taxes and insurance on your property on time every year and have no other recent credit issues, you probably will have no problems with your request for a reverse mortgage assuming your income and property meet HUD requirements.
  If you have paid your taxes and insurance late in the past 24 months, you would be required to have a set aside to pay the taxes and insurance on your home, but you could still get the loan. If your credit is not good with recent accounts, you may still be able to get the loan but might also still be required to have the set aside for the payment of taxes and insurance.
  
  The one exception to this would be for the purchase program. HUD does put a higher requirement to have a stronger credit history for borrowers looking to purchase a new home.
  If you are looking to use the reverse for purchase program and looking to take on additional obligations and responsibility, the expectation is that you are a good manager of your finances currently before you take on a new home.
  Reply to ARLO
Inge K.
October 15th, 2019

What happens if I outlive the total value of my home?
Reply to Inge
- ARLO™
  October 15th, 2019
  
  Hello Inge,
  
  You can stay in the home for as long as you continue to pay your taxes and insurance on the property and maintain the home in a reasonable manner, regardless of the loan balance and the value. If you outlive the value of the home, it does not affect your ability to remain in the property.
  And your estate or your heirs can never owe more than the property is worth. A reverse mortgage is a non-recourse loan which means that when you finally must leave the property or you pass, your heirs can keep the home and pay off the loan at the amount owed or 95% of the current market value, whichever is less or they can simply walk away and owe nothing if they choose not to keep the property.
  The lender cannot look to your estate or to your heirs to make up any shortfalls if the property will not sell for enough to repay the loan balance. You pay for mortgage insurance as part of the loan and if this were to happen, the lender would file a claim with HUD and your insurance would pay for any shortfall.
  Reply to ARLO
David K.
July 29th, 2019

Is there a prepayment penalty if I want to buy the lender out?
Reply to David
- ARLO™
  July 29th, 2019
  
  Hello David,
  
  There is never a prepayment penalty with a reverse mortgage. You may prepay any portion you choose up to and including the full outstanding balance of the loan at any time without penalty.
  This can be done with funds available to you, with a new loan or if you decide you want to sell the home. And you aren't really "buying the lender out" because you always own the home. You are simply choosing to repay the loan.
  Some borrowers choose to make payments on the loan. Even though there are no payments required with a reverse mortgage, you can choose to pay any amount at any time to either slow the growth of the balance owed or to begin repayment at your discretion.
  And, if you choose not to make a payment any month after you begin paying for any reason, there are no adverse consequences since there was no payment due in the first place. You really do have a lot of options with the reverse mortgage.
  Reply to ARLO
Meghan G.
September 16th, 2018

If I am a grandchild to a person with a reverse mortgage and would like to get the home after the eventual passing of my grandfather, would I have to make the payment back at one time or could I be added to the loan in some sort of way so that I could repay it over time like a forward loan?
Reply to Meghan
- ARLO™
  September 17th, 2018
  
  Hello Meghan,
  When none of the original borrowers are still living in the home, the loan becomes due and payable at that time. You would not be able to "be added" to the existing loan and there is no provision to assume a reverse mortgage.
  But the lender does not determine to whom the property ownership will be granted. If your grandparents have their affairs in order, then the property ownership would go through probate and would pass to the heir(s) in accordance with their wishes.
  If you are that individual and you receive sole ownership, you could make payments on a new loan, but it would necessitate a refinance of the loan with a new loan in your name. If you are not named as their heir or they do not have the property ownership predetermined after their passing, that would be determined by the probate court.
  At that time, the new owner (and that might be you, another family member or a group of family members together) would have to decide if the property was to be kept or sold. If the property was to be kept by anyone in the family, then the loan would have to be repaid.
  As I stated earlier, the lender has no part to play in this process. They are a lienholder and it is up to the current owners (your grandparent) and any family members and the courts to determine who will own the property after the passing of the owner.
  The lender merely holds a Deed of Trust or Mortgage against the property that will become due and once the ownership is ironed out, then you, you and the other heirs, or the other heir(s) if you are not an heir need to determine which way you intend to proceed, sell the home or pay off the loan and keep the property.
  The more decisions and plans you make in advance the better prepared you will all be when the time comes to act. If there is nothing in writing at this time for future ownership of the home, now might be a great time for the family to talk about it with your grandparent.
  I don't know your situation and whether there even are other relatives who may have plans for the home but knowing your grandparents wishes is a great place to start.
  Reply to ARLO
ARLO™
April 24th, 2017

Hi Nuala,

The HUD Financial Assessment guidelines do require a set aside when borrowers do not fully meet the HUD underwriting criteria, have had recent credit issues (especially with late payments of taxes or insurance within the past 24 months) and then funds are set aside from the loan to pay the taxes and insurance. Otherwise, borrowers pay these expenses on their own as they become due.

The amount you receive depends on additional factors which also include your age, interest rates and whether or not you're looking for a payment for life or for a set term. My suggestion would be that you request a proposal for your specific circumstances. It's free, it has no obligations and we can send you one without any pressure.
Reply to ARLO
Dan C.
April 24th, 2017

How does a mortgage work for people 90+ years old when we pass away? I was told that a home can be sold by children within 30 days or the home goes to the mortgage company.
Reply to Dan
- ARLO™
  April 24th, 2017
  
  Hi Dan,
  
  You and your heirs always own the home. At the time you pass, your heirs need to decide on what they wish to do. They have the option of keeping the home or selling the home. If they keep the home, they need to pay off the existing loan and if they sell the home, the loan would be paid off with the sale.
  
  If they do choose to keep the home, then the heirs have the option of paying off the existing loan by paying off the amount owed or 95% of the current market value, whichever is less.
  
  If they choose to sell the home, then they would want to contact the lender and let them know that they were in the process of marketing and selling the home and the lender will work with them to determine the steps to complete the payoff. The home does not just "go to the lender" at any time.
  
  The only way the lender can ever take title to the property is the same way as with a traditional or forward loan, if you or your heirs deed the home to them, or they foreclose on the loan. In some cases where the value has dropped since the owners took the loan and there is no equity in the home, some families do opt to allow the lender to take possession of the home rather than going through the work involved to sell the home.
  This is especially true when family is not in the immediate area and the value has dropped.
  
  I just encourage families to have a plan so that when the time comes, they know their rights and their options, and they take swift action to do what works best for the family.
  Reply to ARLO

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