How to Get a Reverse Mortgage if You Still Owe on Your Home

May 2, 2022 By Michael Branson 16 comments

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 traditional 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?

2023's Reverse Mortgage Principal Limit Factors

Age of Borrower	Principal Limit Factor	Current Lending Limit
62	39.6%	$1,089,300
65	41.7%	$1,089,300
70	45.2%	$1,089,300
75	47.9%	$1,089,300
80	52.2%	$1,089,300
85	58.0%	$1,089,300
90	64.4%	$1,089,300

*Principal Limit Factors taken from HUD.gov using example expected rate of 5.190%. You must deduct reverse mortgage costs including 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

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

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.

America's #1 Rated Reverse Lender Celebrating 18 Years of Excellence.

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

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About the Author, Michael G. Branson | Mike@allreverse.com

Michael G. Branson CEO, All Reverse Mortgage, Inc. and moderator of ARLO™ has 40 years of experience in the mortgage banking industry. He has devoted the past 18 years to reverse mortgages exclusively.

16 Comments on this Article

Kasey S.
December 28th, 2022

My parents are retired and owe more than 50% on their home. Can they use a home equity loan to bring that percentage down to qualify?
Reply to Kasey
- ARLO™
  December 31st, 2022
  
  Hello Kasey,
  They can use a gift from other family members, but they cannot use other financing. The loan does not allow for other financing to remain on the property and can be the only loan/lien at the time of closing.
  Reply to ARLO
Mike
April 26th, 2022

I already have a reverse mortgage. Can I still borrow money on the equity of my home?
Reply to Mike
- ARLO™
  May 2nd, 2022
  
  Hello Mike,
  
  You may be able to refinance the current reverse mortgage and get more money, but you would need to be able to qualify under current terms.
  The reverse mortgage does not prohibit you from getting another loan behind your reverse mortgage but most lenders are hesitant to lend in a lien position behind a reverse mortgage because they know there is no payment required on the reverse mortgage and that balance can continue to rise and therefore, their loan to value will be higher than when they started if the homeowner takes additional funds from their reverse mortgage or just continues to accrue interest on the loan while not making payments on the outstanding balance.
  If you qualify for the refinance of the reverse mortgage, then you can utilize the new terms and continue making no payments so most borrowers with reverse mortgages look to refinance their existing loans first (and in all honesty, I think that is the easiest path because finding a lending source willing to lend behind a loan whose balance increases is not an easy task).
  Check us out our HECM refinance calculator if you would like us to review your circumstances to see if you qualify to refinance your loan with a new reverse mortgage with higher limits.
  Reply to ARLO
Mark
January 11th, 2022

Hi Arlo,

I'm not really clear on this if you can help me please: if my home is appraised for $200,000 and I have an existing regular mortgage of $100,000; do I have to pay off the existing mortgage balance from the reverse mortgage funds I will receive? It would probably be the only way I would be able to pay off the original mortgage balance in full. Thank you!
Reply to Mark
- ARLO™
  January 11th, 2022
  
  Hello Mark,
  
  Yes, any liens/mortgages must be paid in full at closing and the reverse mortgage would be the only loan remaining on the property at that time. This means that you must be able to receive enough funds to pay for the cost of the loan and to pay off all current loans/liens on the property or you would need to bring cash in to close the loan if you still wanted to close the reverse mortgage to eliminate your monthly mortgage payments.
  Reply to ARLO
Rowleen P.
October 25th, 2021

We owe $126,000 on our forward mortgage and we have a home equity down for $47,000 and we are behind on two house payments, how does this work for us?
Reply to Rowleen
- ARLO™
  November 2nd, 2021
  
  Hello Rowleen,
  
  Borrowers who have had late payments on their current mortgages or their other property charges (Taxes, insurance, HOA dues, etc.) in the past 24 months can still get a reverse mortgage but HUD now requires them to get a Life Expectancy Set Aside LESA (or Lee Sah) to pay their taxes an insurance from their loan proceeds. Which means for you to qualify under HUD's current financial assessment guidelines, you would need to have enough equity in the home to pay off the existing loans and fund the LESA.
  The LESA will set funds aside so that the lender can pay your taxes and insurance as they come due. It is actually not a bad deal for borrowers as long as you have the equity to fund the account because the loan funds are not considered borrowed until the lender actually uses them to pay for the charges due (in other words, send them to your tax assessor or your insurance company).
  You don't accrue interest on those funds until they are used for your charges and you don't have to worry about coming up with the money to pay those charges, they lender will pay them from the funds set aside. If you pay the loan off early (i.e., move and sell the home), you never used those funds and so you are not required to repay that portion of the loan.
  
  You need to contact your lender and let them know that you are currently delinquent on your mortgage payment so they will know that a LESA will be required and they will be able to review your circumstances to see if the sales of similar houses in the area tend to support a value that would indicate that you have sufficient equity to fund the LESA as well as pay off your current loans.
  The LESA amount depends on your ages and the amount of your charges (taxes and insurance) so the only way to know for sure is to have a lender run your numbers to see if they will work. It would have been much better to do so before you became due for two payments so if this is what you think you need to do, I would advise that you not wait much longer.
  Reply to ARLO
Leon K.
December 17th, 2020

I have a mortgage, can I still get a reverse mortgage?
Reply to Leon
- ARLO™
  December 17th, 2020
  
  Hello Leon,
  
  The home does not need to be paid off to get a reverse mortgage but any loans on the property now would need to be paid in full with the reverse mortgage proceeds so that the reverse mortgage is the only loan on the property after it closes.
  Reply to ARLO
Paula W.
June 18th, 2020

I want do a reverse mortgage but I still owe on $59,000 on my loan . Would still be able to get a good amount of cash?
Reply to Paula
- ARLO™
  June 18th, 2020
  
  Hi Paula,
  
  The amount for which you are eligible would depend on the value of the home, your age and interest rates at the time. Rates are low right now so that is in your favor.
  The only way to determine what you could expect to receive would be to visit our online calculator, plug in a little information (we don't need your social security number or any sensitive information -if you don't want to use your actual date of birth just pick a date close by so the calculator can accurately determine your benefits) and then you can decide from there if you want to go any further.
  Reply to ARLO
Carmen
May 17th, 2019

My grandma took $50,000 out of her reverse mortgage and wants to gift it to us to purchase a home. Can we use that money?
Reply to Carmen
- ARLO™
  May 17th, 2019
  
  Hello Carmen,
  
  Your Grandmother can do anything she wants with the funds from her reverse mortgage. It is her home and her equity; she can use the proceeds for any purpose she wishes.
  We have had several borrowers over the years who got the loan for this very purpose. One such couple said they did not want to wait until after they were gone for their family to be able to use some of their inheritance, they wanted to see what good they were able to do and enjoy watching them use it.
  The one thing that I would caution is that there may be restrictions regarding gift funds on your side that require the sourcing of the funds from the donor and so you may want to verify on your end what those requirements are in advance but your grandmother is fine with her loan.
  Reply to ARLO
Jane C.
May 15th, 2019

If a home is paid in full, no outstanding loans of any kind with joint but unequal ownership (25% & 75%) and both owners are over 62, is a reverse mortgage still possible and how would it work? Example: Jane age 68 owns 75% and Dan age 64 owns 25% of the home. Both names are on the title.
Reply to Jane
- ARLO™
  May 15th, 2019
  
  Hello Jane,
  
  This is a very interesting situation and it brings up a few issues that borrowers need to know, consider and possibly plan for in advance. Firstly, you are eligible for the reverse mortgage even if you are not married and you do not have equal ownership rights to the property.
  But even though you may have different ownership interest in the home, you cannot restrict loan funds unequally. Therefore, the loan can be closed but you can't make it so that the 75% owner has access to 75% of the loan funds while the 25% owner has access to just 25% of the loan. Both borrowers have full and equal access to the loan proceeds.
  
  The next thing you need to know is that the loan is still valid and remains in place if at least one of the original borrowers is still living in the home as their primary residence. What this means is that if one owner passes and their ownership interest is passed to his/her heirs, the loan will still be in good standing with the remaining borrower and will still be accruing interest at that time.
  The equity in the home will be affected by the remaining borrower still living in the home which could change things drastically by the time the heirs ultimately inherit their ownership. The equity could rise if the interest accrual was minimal and the values continued to rise, it could be wiped out with a downturn in values combined with interest accrual for many years if the passing of one borrower was considerably sooner than the other. The possibilities are endless.
  
  If you choose to put some agreement in place regarding the forced sale of the home if one should pass, that is completely apart from the reverse mortgage. The reverse mortgage has no such provision and would be valid if at least one borrower is still in the home. No one knows what the future will bring, and such an agreement could leave the remaining owner, especially the minority owner, without a place to live at some point.
  This is one of those times when you can do the loan, but you really need to decide if you should do the loan, and if so, under what conditions. If you decide to proceed, I would advise that you consult with family members who may be affected later and an attorney so that you know all the possible issues in advance, that any agreements are in writing and enforceable.
  Reply to ARLO

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