How Reverse Mortgages Work – Explained in Simple Terms!

Q: Do I need good credit to qualify?

You do not need perfect credit to get a reverse mortgage. Unlike traditional loans, reverse mortgages are more focused on your home equity and ability to keep up with property charges like taxes and insurance. If your credit history shows past issues, HUD allows a Life Expectancy Set-Aside (LESA). This means a portion of the loan is set aside to pay your property taxes and homeowners' insurance. As long as there’s enough room in your loan to cover the LESA, you may still qualify. However, in some cases the LESA requirement can reduce the available funds to the point where it may not fully pay off your existing mortgage, which could prevent you from moving forward.

Q: What is the 95% rule on a reverse mortgage?

The 95% rule applies to heirs after a reverse mortgage comes due. If the loan balance is higher than the home’s current value, heirs can choose to keep the property by paying only 95% of its current appraised value—not the full loan balance. This HUD protection ensures that heirs will never owe more than the home is worth, even if the loan balance has grown beyond the property’s value.

Q: What are the downsides of a reverse mortgage?

The 95% rule applies to heirs after a reverse mortgage comes due. If the loan balance exceeds the home’s current value, heirs can opt to retain the property by paying only 95% of its current appraised value, rather than the full loan balance. This HUD protection ensures that heirs will never owe more than the home is worth, even if the loan balance has grown beyond the property’s value.

September 9, 2025

Michael G. Branson Edited by

Cliff Auerswald

22 comments

For over 20 years, All Reverse Mortgage, Inc. has helped thousands of homeowners achieve financial freedom through federally insured reverse mortgages.

As a HUD-approved lender that specializes exclusively in reverse mortgages, we bring unmatched expertise to this space. That’s why this 2025 guide doesn’t just cover the basics, it gives you the complete picture: how reverse mortgages work, what they cost, your payout options, and what they mean for your heirs.

Table of Contents

• What Is a Reverse Mortgage?

• Reverse Mortgage vs. Traditional Mortgages and Home Equity Loans

• How Much You Can Get From a Reverse Mortgage

• How Age Affects Your Principal Limit

• How You Can Receive the Funds

• The Line of Credit Growth Advantage

• Analyzing Interest Rates and Closing Costs

• Reverse Mortgage Costs vs. Benefits in 2025

• Main Costs & Considerations

• Frequently Asked Questions

• Key Takeaways: How Reverse Mortgages Work in 2025

What Is a Reverse Mortgage?

A reverse mortgage is a loan exclusively for homeowners age 62 or older. It allows you to convert a portion of your home’s equity into tax-free cash without the obligation of having to make a mandatory monthly mortgage payment.

You remain the homeowner and decide how to receive funds:

Lump sum at closing
Monthly payments (for a set term or for life)
Line of credit you draw on when needed
Or a combination of these options

The loan is repaid when you sell your home, permanently move out, or pass away.

Expert Insight from Michael Branson, CEO: “The more money you borrow at the beginning of the loan, the faster the interest will accrue on the larger balance. If you are looking to pass on the largest asset to your heirs, you can significantly reduce the amount of interest that accrues by borrowing smaller amounts and as late in the loan cycle as is comfortable or necessary.”

Reverse Mortgage vs. Traditional Loan: Key Differences Explained by ARLO™

Reverse Mortgage vs. Traditional Mortgages and Home Equity Loans

When considering borrowing against your home, most people envision a traditional mortgage or a home equity line of credit (HELOC). A reverse mortgage works very differently; it was designed specifically for homeowners age 62 or older.

Here’s how they compare:

Feature	Reverse Mortgage (HECM)	Traditional Mortgage	Home Equity Loan / HELOC
Age Requirement	62+	18+	18+
Monthly Payments	None required	Required	Required
Funds Access	Lump sum, monthly payments, line of credit, or combination	Lump sum at closing	Lump sum (loan) or revolving credit line (HELOC)
Repayment	Due when you sell, move, or pass away	Paid monthly over term (15–30 years)	Paid monthly over term
Equity Impact	Loan balance grows as interest accrues (unless repaid voluntarily)	Equity builds as balance decreases	Equity builds as balance decreases
Borrower Protections	FHA-insured HECM is non-recourse (you never owe more than the home’s value)	No federal protections beyond standard lending laws	No federal protections beyond standard lending laws

Key takeaway: With a reverse mortgage, you stay in your home and can choose whether or not to make payments. Unlike a HELOC or cash-out refinance, repayment isn’t required until you move out, sell, or pass away. That flexibility is why many older homeowners use a reverse mortgage to supplement retirement income while preserving monthly cash flow.

Expert Insight from Michael Branson, CEO: “If your goal is flexibility, the reverse mortgage line of credit is unmatched. It grows over time and gives you access to more funds in the future, unlike a HELOC that can be frozen or reduced by the bank.”

How Much You Can Get From a Reverse Mortgage

The amount of money you can get from a reverse mortgage usually ranges from 40% to 60% of your home’s appraised value. The older you are, the more you can receive because loan amounts are based on your age and current interest rates.

Several factors determine the loan amount:

The age of the youngest borrower or spouse
The value of the home or the current HUD lending limit (whichever is less)
The current interest rates

You can use our reverse mortgage calculator to find out how much you can receive from a reverse mortgage.

How Age Affects Your Principal Limit

Your Principal Limit (loan amount) is the maximum amount that you can receive on a reverse mortgage for your specific scenario. It is based on the age of the youngest borrower (or eligible non-borrowing spouse), your home’s current property value or HUD lending limit (whichever is less), and current interest rates.

The older you are, the more you will receive.
The higher your home value, the more you will receive.
The lower the interest rate, the more you will receive.

HUD utilizes Actuarial Tables data to determine the loan-to-values available on the HECM (Home Equity Conversion Mortgage) program. An 85-year-old borrower does not have the same life expectancy as a 62-year-old borrower, and therefore, the amount they can borrow is more. Interest rates factor into the equation because the interest on the loan is added to the balance and compounds over time, as there are no monthly mortgage payments required. The higher the rate on the loan, the faster interest will accrue.

Key Point: When a homeowner has a reverse mortgage loan, they can live in their home for the rest of their life without any monthly mortgage payment being owed as long as they occupy the home as their primary residence, pay the property taxes, maintain homeowners insurance, and continue the upkeep of the property.

Pro Tip: If you are within 6 months of your next birthday at the time of loan closing, the calculator will round your age up to the next year. The reason this is important is that you are eligible for a slightly higher loan-to-value at every age increment.

How You Can Receive the Funds

One of the best features of a reverse mortgage is that there are multiple options for how you can receive your available proceeds, which provides homeowners with tremendous flexibility that you wouldn’t have with other loan products.

Lump Sum: A one-time payout at the time of closing of all available proceeds (Fixed Rate loan).
Line of Credit: Access funds when needed, and all unused funds are subject to a growth rate, which increases borrowing capacity over time.
Term Payment: An automatic monthly disbursement of a set dollar amount for a predetermined amount of time, such as 5 or 10 years.
Tenure Payment: An automatic monthly disbursement of a set dollar amount for life (as long as you live in the property and keep the loan in good standing)
Combination: Combine 2 or more features to suit your goals as necessary.

Scenario Example:

A borrower, aged 66, owns a $500,000 home that is free and clear (no existing mortgage). At current interest rates (as of September 2025), they could do the following combination:

Take $80,000 initial advance to do a complete home renovation to upgrade multiple areas of the home.
Set up a $1,000 per month term payment for 4 years to supplement income until they reach the age of 70, before they start collecting Social Security to achieve a higher monthly payout.
Leave the remaining funds of ~$60,000 in a line of credit for emergencies. The funds left in the line of credit would be subject to the growth rate. The growth rate is always applied to the amount available in the Line of Credit.

Want to see how each payout option works? Explore real examples and discover which reverse mortgage payment plan best suits your needs. Learn more about Term, Ten-Year, and Tenure payments →

Expert Insight from Michael Branson, CEO: “A reverse mortgage can be a smart way to bridge the gap before claiming Social Security. By using monthly term payments or a line of credit to cover expenses, some homeowners delay filing for Social Security until a later age, allowing them to lock in a higher lifetime benefit. This strategy can increase long-term retirement income while still giving you the flexibility to use your home equity on your own terms. Your line of credit grows on the portion of the line you do not use, so you can begin allowing the line to grow, giving you greater borrowing power later if you need it. Be sure to check with your financial advisor to see what is right for you regarding your Social Security and/or pension plans.”

The Line of Credit Growth Advantage

The growth rate feature on the HECM (Home Equity Conversion Mortgage) is one of the most amazing features of the reverse mortgage program and truly sets it apart from other loan products. All unused funds available in a reverse mortgage line of credit are subject to a growth rate that equals the actual loan interest rate plus the HUD mortgage insurance renewal rate, which is currently 0.50% as of September 2025.

Example:

Borrower has a starting line of credit of $200,000 with a growth rate of 5.50% and doesn’t access or withdraw any funds from it.

5 years of growth at 5.5% untouched = $263,140.75
10 years of growth at 5.5% untouched = $346,215.28
15 years of growth at 5.5% untouched = $455,516.75

Interest rate fluctuations and withdrawals from the line of credit will impact the overall growth and available line of credit, but as long as there are funds available in your line of credit, the growth rate will be applied to that amount and reflected on your mortgage statement every single month.

Important: This isn’t interest that you are earning; it is simply an increase in borrowing capacity.

Expert Insight from Michael Branson, CEO: “Even if your reverse mortgage line of credit eventually grows larger than your home’s value, you can still withdraw every dollar tax-free and remain in your home for life. HUD guarantees full access to your line of credit, even if your lender goes out of business through built-in FHA mortgage insurance protections.”

ARLO shopping around for the best interest rates and closing costs.

Analyzing Interest Rates and Closing Costs

Not all reverse mortgages are created equal, as interest rates, margins, and closing costs can differ significantly between lenders.

A lender with slightly lower upfront closing costs might appear attractive at first glance, but if their margin/interest rate is 0.50% higher, it will result in a lower available loan amount and higher interest accrual over the life of the loan.

Conversely, a loan with a slightly higher margin will give you a higher rate of growth on the unused funds in your line of credit, so if that is your goal, you will want to analyze that further.

What to Compare:

Interest rate + margin
Initial loan amount (Principal Limit), as well as the starting line of credit
Closing costs (origination fee, appraisal, 3^rd party service providers, etc.)
Servicing Fees (if any) are rare in today’s market, but some lenders still charge monthly servicing fees.

Smart Strategy: Choose the option that will achieve your most important goals, whether that is maximizing the available loan amount, preserving as much equity as possible, or having the highest possible line of credit growth.

Expert Insight from Michael Branson, CEO: “Watch your financing terms. Don’t accept a larger margin that can end up costing you thousands of dollars in accrued interest over the years and leave you with less money available at closing, to save a little money on one fee. Look at all the terms offered and compare lenders.”

Reverse Mortgage Costs vs. Benefits in 2025

A reverse mortgage can be a powerful retirement tool, but as is the case with any financial decision, there are trade-offs. Here is the complete picture:

Key Benefits

No required monthly mortgage payments – a reverse mortgage allows you to borrow money without the associated burden of a mandatory payment every month, which frees up your monthly cash flow.
Stay in your home for life – as long as you live there as your primary residence, maintain taxes and insurance, and overall upkeep on the home.
Flexible Payout Options – choose from a lump sum, monthly payment plan, line of credit, or a combination of two or more options
FHA-Insured Protections – HECM reverse mortgages are non-recourse loans. This means that you can never owe more than the value of the property at the time of maturity.
Financial Flexibility – proceeds can be used for virtually anything. Home improvements, medical expenses, debt payoff, supplementing income, etc., are just a few examples.
Line of Credit Growth – Unlike a traditional HELOC (Home Equity Line of Credit), your unused line of credit grows in availability over time, and it cannot be frozen or reduced because of market conditions.

Pro Tip: Before deciding on a reverse mortgage, think carefully about your long-term aging-in-place plans. Do you live in a two-story home? Is it fully accessible as you get older? In some cases, downsizing or “right-sizing” with a reverse mortgage for home purchase may be a smarter way to secure both comfort and financial flexibility for the years ahead.

Main Costs & Considerations

Upfront Fees – reverse mortgages will have higher upfront fees when compared to traditional loans due to the FHA mortgage insurance premium (MIP). It is due to the MIP, however, that you get the non-recourse feature of the loan program.
Ongoing MIP Charges – the mortgage insurance renewal cost is currently 0.50%, and this amount is added to the balance, along with the interest that accumulates on the loan balance.
Equity Reduction – as your loan balance increases, it is possible that the equity position in your home could be reduced if the home value is not increasing at a rate to offset the rising balance. This could reduce the inheritance left to heirs.
Property Obligations Remain – you must continue to pay property taxes, homeowners insurance and the costs of maintaining the home. You are not selling the property, so as the owner of the home, you are responsible for these items.
Primary Residence Requirement – you can’t use a HECM reverse mortgage on a vacation home or investment property. If you wish to move out of the home, the reverse mortgage would need to be paid off.

Pro Tip: If preserving home equity for your heirs is your top priority, consider making optional payments or taking smaller draws to retain a larger portion of your home’s equity.

Feature	Pro	Con
Home Equity Access	Tap into your home’s value without selling or moving.	Equity decreases over time as loan balance grows.
Monthly Payments	No mortgage payments required.	Must still pay taxes, insurance, and maintenance.
Stay in Your Home	Live in your home for life.	Must remain your primary residence.
Payout Flexibility	Lump sum, monthly income, line of credit, or combination.	Larger upfront draws may reduce future access.
Government-Insured	FHA insurance guarantees borrower protections.	Requires upfront and ongoing MIP.
Heir Options	Heirs can sell the home at 95% of market value.	Inheritance may be reduced if balance is high.
Non-Recourse	You or heirs never owe more than the home’s value.	Heirs must act quickly to settle the loan after death.

Frequently Asked Questions

Who owns the home with a reverse mortgage?

You remain the legal owner of your home when you take out a reverse mortgage. The lender does not take ownership. A reverse mortgage is simply a loan secured by your property, much like a traditional mortgage. You keep the title in your name, and the lender only has a lien against the home.

(Tip: Think of it just like a regular mortgage—the bank has a lien, not the deed.)

How much money can I get from a reverse mortgage?

The amount of money you can get from a reverse mortgage depends on three key factors:

Age of the Youngest Borrower – The older you are, the more money you can access.
Current Interest Rates – Lower rates allow you to borrow a higher percentage.
Home’s Appraised Value – The higher your home’s value, the more funds may be available.

Together, these factors determine your Principal Limit Factor—the percentage of your home’s value you can borrow. To see how much you may qualify for, try our free reverse mortgage calculator at https://reverse.mortgage/calculator.

How is the loan amount determined?

The loan amount for a reverse mortgage is based on guidelines set by HUD using what’s called the Principal Limit Factor (PLF). The PLF takes into account:

Age of the Youngest Borrower (or Eligible Spouse) – Older borrowers qualify for a higher percentage.
Current Interest Rates – Lower rates allow you to borrow more.
Home Value (up to FHA’s lending limit) – Your home’s appraised value also plays a role.

Because interest rates can vary by lender, the amount you qualify for may differ depending on which lender you choose. Using a reverse mortgage calculator can give you a personalized estimate based on your specific age, home value, and current rates.

Do I need good credit to qualify?

You do not need perfect credit to get a reverse mortgage. Unlike traditional loans, reverse mortgages are more focused on your home equity and ability to keep up with property charges like taxes and insurance.

If your credit history shows past issues, HUD allows a Life Expectancy Set-Aside (LESA). This means a portion of the loan is set aside to pay your property taxes and homeowners’ insurance. As long as there’s enough room in your loan to cover the LESA, you may still qualify.

However, in some cases the LESA requirement can reduce the available funds to the point where it may not fully pay off your existing mortgage, which could prevent you from moving forward.

Is an appraisal required?

Yes. An appraisal is required for every reverse mortgage. Most reverse mortgages are part of the FHA-insured HECM (Home Equity Conversion Mortgage) program, which requires an FHA-approved appraisal of your home.

The appraisal confirms the home’s value and ensures it meets HUD’s minimum property standards. If you’d like to review those standards, you can visit HUD’s official site: HUD Minimum Property Standards.

Can you make payments on a reverse mortgage?

Yes. While one of the biggest benefits of a reverse mortgage is that you don’t have to make monthly payments, you can choose to make voluntary payments at any time.

Making payments can help reduce your loan balance or increase the available funds in your line of credit. There are no prepayment penalties, so you can pay off part or even all of the loan whenever you wish.

What is the 95% rule on a reverse mortgage?

The 95% rule applies to heirs after a reverse mortgage comes due. If the loan balance exceeds the home’s current value, heirs can opt to retain the property by paying only 95% of its current appraised value, rather than the full loan balance.

This HUD protection ensures that heirs will never owe more than the home is worth, even if the loan balance has grown beyond the property’s value.

What are the downsides of a reverse mortgage?

Reverse mortgages can be a valuable tool, but there are a few downsides to consider before deciding if it’s right for you:

Higher Upfront Costs – Most reverse mortgages are FHA-insured HECM loans, which include a one-time Mortgage Insurance Premium of 2% of the home’s value (up to HUD’s current lending limit of $1,209,750 as of September 2025). While this insurance provides important protections, it adds to the initial costs.
Growing Loan Balance – Because no monthly payments are required, interest and fees are added to the balance each month. This means your loan balance will increase over time, which reduces the equity left in your home.

A reverse mortgage works best as a long-term solution. If you’re only planning to stay in your home a short time, the upfront costs may outweigh the benefits.

Can I lose my home with a reverse mortgage?

Yes. Just like with any mortgage, you could lose your home if you don’t meet the loan requirements. With a reverse mortgage, you must:

Live in the home as your primary residence
Stay current on property taxes and homeowners insurance
Keep the home in reasonable repair

If these obligations aren’t met, the lender can call the loan “due and payable.” At that point, the balance must be repaid either by refinancing, selling the home, or paying it off with other funds. If the loan is not repaid, foreclosure is possible.

The good news is that as long as you follow the occupancy, tax, insurance, and maintenance requirements, you remain the owner of your home and can stay there for life.

What if I outlive my home’s value?

One of the biggest benefits of a reverse mortgage is that it’s a non-recourse loan. This means you can never owe more than your home is worth, no matter how long you live there or how much your loan balance grows.

For example, if your reverse mortgage balance grows to $500,000 but your home is only worth $450,000 when you leave, neither you nor your heirs are responsible for the $50,000 difference. The FHA Mortgage Insurance Fund covers that shortfall.

In other words, you can stay in your home for life without worrying about outliving its value, and your estate is protected from owing more than the home’s worth.

How does a reverse mortgage get repaid?

A reverse mortgage is usually repaid when the borrower permanently leaves the home, but repayment can happen at any time since there are no prepayment penalties. Common ways to repay include:

Selling the Home – The loan is paid off from the sale proceeds.
Refinancing – You can refinance into another mortgage product if it makes sense.
Using Other Funds – Borrowers or heirs may use savings, life insurance, or other assets to pay off the balance.

Most often, repayment happens through the sale of the home after the borrower passes away or moves out. Any remaining equity after the loan is repaid belongs to the homeowner or their heirs.

How long do you have to pay back a reverse mortgage?

A reverse mortgage does not need to be repaid until a maturity event occurs. This typically means:

The last surviving borrower (or eligible non-borrowing spouse) permanently leaves the home, either by moving out or passing away.
The borrower fails to meet the loan requirements, such as paying property taxes, maintaining homeowners’ insurance, or keeping the home in good repair.

Once the loan becomes due and payable, the servicer will contact the borrower or heirs. Common repayment options include selling the home, refinancing, or paying off the balance with other funds.

If heirs plan to sell the property, servicers generally allow extensions in 90-day increments, up to one year, as long as good-faith efforts to sell are being made. If there is no cooperation or repayment plan, foreclosure may proceed, with timelines varying by state law.

Key Takeaways: How Reverse Mortgages Work in 2025

Lets you convert home equity into tax-free loan proceeds without monthly mortgage payments.
The most common program is the Home Equity Conversion Mortgage (HECM), which the FHA insures.
You must be 62 or older and live in the home as your primary residence.
Loan amount depends on your age, home value, and current interest rates.
Repayment is only due when you sell, move out permanently, or pass away.
Non-recourse rules protect your heirs. They’ll never owe more than the home’s value.
You keep ownership of your home and can sell or pay off the loan at any time, with no prepayment penalties.

Expert Insight from Michael Branson, CEO: The biggest advantage of a reverse mortgage is flexibility. You’re not locked into monthly payments, but you can still make them if preserving equity is your goal.

Need Personalized Answers? All Reverse Mortgage, Inc. (ARLO™) is here to help. Access our reverse mortgage calculator to estimate your lending limit, or call us Toll-Free at (800) 565-1722. We’re here to help you make informed decisions, allowing you to continue enjoying your retirement.

America's #1 Rated Reverse Lender Celebrating 20 Years of Excellence.

Have a Question About Reverse Mortgages?

Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 20 years dedicated solely to reverse mortgages, he's the expert you want on your side.

Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

22 Comments on this Article

Kathleen F.
July 1st, 2025

I am 79 years old, and I have a reverse mortgage on my home. When I took the loan out, my house was paid off, so I am not making payments. How can I get out of this loan?
Reply to Kathleen
- Michael Branson
  July 1st, 2025
  Hello Kathleen,
  A reverse mortgage is simply a loan, and you can pay it off at any time without penalty. You have a few options:
  There is never a prepayment penalty, so you're free to choose whichever option works best for you.
  Please let us know if you'd like help exploring the next steps.
  Reply to Michael
Stacie
May 13th, 2024

Can we get a reverse mortgage if our house is appraised at $650,000 and we owe $398,000?
Reply to Stacie
- Michael Branson
  May 13th, 2024
  
  Hi Stacie,
  Thanks for your question! The amount you can receive from a reverse mortgage depends on three key factors: the value of your home, the age of the youngest borrower, and the current interest rates.
  Given the higher interest rates we're seeing today, the amount available is typically less than it might have been a few years ago when rates were lower. To get a specific idea of what you could qualify for, I recommend using our free online calculator. It's easy to use and you don't need to provide sensitive information like social security numbers.
  Also, keep in mind that if inflation decreases and interest rates drop, your potential benefits from a reverse mortgage could improve. Although you generally can't refinance a reverse mortgage within the first 18 months unless there's an extreme need, it's something you might consider later if the conditions become more favorable and both you and your property qualify.
  While there's no guarantee of being able to refinance in the future, many borrowers have found it beneficial when the circumstances were right, depending on changes in interest rates and property values.
  Reply to Michael
Melissa F.
April 29th, 2024

I'm looking for options for my parents. They have a house worth about $100,000, but it's getting hard for them to keep it up. Housing is very high in our area, so if they move, they would need to buy something worth about $200,000. Could they do a reverse mortgage on the new house they would buy?
Reply to Melissa
- Michael Branson
  May 5th, 2024
  
  Hello Melissa,
  Yes, you can use a reverse mortgage to purchase a property. The buyers will need to determine how much money they will net from selling their current home. Additionally, whether they have any extra funds to use alongside the sale proceeds will dictate how much house they can afford.
  Once they know the total funds available, they can use a HECM purchase calculator to estimate how much house they can buy. You can also look at the houses currently for sale to see if this option would be feasible for them.
  Reply to Michael
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
- Michael Branson
  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 Michael
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
- Michael Branson
  January 12th, 2023
  
  Thanks Donald. We wish you the very best with your future endeavors!
  Reply to Michael
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
- Michael Branson
  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 Michael
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
- Michael Branson
  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 Michael
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
- Michael Branson
  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 Michael
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
- Michael Branson
  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 Michael
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
- Michael Branson
  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 Michael
Cathy C.
July 7th, 2020

Can you get a reverse mortgage for $10,000? That is all I am needing, thanks!
Reply to Cathy
- Michael Branson
  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 Michael

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