In this article, you’ll learn:

  • How to eliminate your monthly forward mortgage payment with a reverse mortgage
  • What expenses you’ll still be accountable for after eliminating your mortgage payment
  • How you can still make payments without worrying about a monthly deadline
  • How to get the best deal / highest principle lending limit

The ability to tap into the value of your home by turning its equity into cash can be a powerful tool for someone trying to find a way to expand their financial options for a whole host of reasons. This can naturally lead to questions that could apply to someone’s previously existing traditional, or ‘forward’ mortgage. One of those major questions can be, ‘if I still have a forward mortgage, I haven’t paid off yet, can I even get a reverse mortgage?’

Not only can you still potentially get a reverse mortgage if you still have an outstanding traditional mortgage, but you might be surprised to learn that one of the major reasons that a senior even bothers with a reverse mortgage in the first place is to eliminate their previously-existing forward mortgage payment. A Home Equity Conversion Mortgage takes the first lien position on the property, so any other mortgages must be paid off in order to close the reverse mortgage.

The key is having enough home equity to qualify. For some, this means a home that is paid off in full. For others, it may just be having a mortgage balance that is low enough relative to the value of the home.

How Much Equity is Required for a Reverse Mortgage?

calculator displaying how much

2019's Reverse Mortgage Principal Limit Factors

Age of Borrower Percentage of Home Value Home Value $200,000Home Value $400,000Home Value $600,000Home Value $726,525 (Current Limit)
620.49%
$98,000$196,000$294,000$356,000
650.51%$102,000$204,000$306,000$370,000
700.54%
$108,000$216,000$324,000$392,000
750.56%
$112,000$222,400$336,000$403,000
800.60%
$120,000$240,000$360,000$435,000
850.65%
$130,000$260,000$390,000$471,000
900.70%
$140,000$280,000$420,000$508,000
*Principal Limit Factors taken from HUD.gov using example expected rate of 3.76%. You must deduct closing costs and upfront insurance (approx. 3%) to arrive at your NET principal limit.
PLF tables source: https://www.hud.gov/sites/documents/august2017plftables.xls

The burden of a forward mortgage payment for retirees

Forward, or “traditional,” mortgage payments represent a serious financial burden for anyone who has one, whether for new homeowners still in the middle of their working lives or seniors in or nearing retirement.

In fact, still having a traditional mortgage payments in retirement tends to hit seniors much harder than their younger counterparts, because often, seniors live on a fixed income that comes from accounts like 401Ks or IRAs along with Social Security benefits. Many seniors are only able to count on their Social Security benefits, which makes the burden of a forward mortgage more painful to bear.

More financial peace of mind

sign that says peace of mind

By replacing your forward mortgage with a reverse mortgage, the necessity of needing to make that monthly forward mortgage payment is gone. Reverse mortgages do not require monthly mortgage payments as long as you live in the home as your primary residence and maintain it in line with the guidelines presented by the Department of Housing and Urban Development (HUD).

You also need to stay current on your property taxes and homeowners’ insurance.

Leveraging a reverse mortgage can give you the opportunity to relieve a lot of financial stress by saying goodbye to the persistent necessity of needing to make your monthly mortgage payment. Eliminating that part of your monthly expenses can give you the opportunity to plan ahead for other unexpected expenses if they come up, or it can free up more cash for you to do other things that are important to you.

Still want to make payments? You can. 

What some people do not know is that even once a reverse mortgage is in place, you can still make payments toward the loan balance. Like with any loan, interest accrues over time. Because a reverse mortgage is a “negatively amortizing” loan, its balance grows over the life of the loan.

Borrowers always have the option to make payments as they would like, and if they are able. Some borrowers who work on commission, such as Realtors, even approach the reverse mortgage with the strategy of making payments when they receive commissions. This enables them to keep the loan balance lower than if they were to simply make no payments.

Pro Tips

reverse mortgage advice

Before signing up for just any reverse mortgage, pay close attention to the lenders closing costs and interest rates! Sadly, many seniors just apply with celebrity pitchman seen on TV, when they should be shopping multiple sources for the best deal.

Shop the Rate

Reverse Mortgage lenders set their own margins and interest rates. The lower the interest rate at the time of application, the more cash proceeds become available to YOU! This is one little-known secret to receiving the largest principle lending limit.

Ignore the Rhetoric

Ignore sales pitches that include “We’re the largest” “We’re —–” Blah!

FHA is the largest and the one that backs your federally insured loan, NOT the loan originator.

Take advantage of ARLO, the All Reverse Loan Optimizer, which can help you to shop around for the best rates and products to find one that fits your own financial situation best.