Here’s the Real Truth About Reverse Mortgages (No BS)

May 26, 2022

By Michael G. Branson Edited by Cliff Auerswald 19 comments

I have read so much reverse mortgage info. It sounds like it is not really to help you but for the bank to help themselves. It is designed to make you think they are helping you, but the truth is you are really giving away your home. You are selling it to them for a very low price. If you get the reverse loan and die a year later you have lost your home, you just gave it away your family can’t do anything about it and cannot have it even with a will. My social worker told me his friend did that and they took his home from him because you must sign over your deeds to them and your home becomes theirs, they can do whatever they want to because the house is theirs. So, I don’t know, you better be careful about peoples claiming they are helping you. Because it is really themselves, they are helping. They know if you are 62 and over you are already looking death close in the face. – Martha

We agree with you on one point… reverse mortgages are not for everyone, and every borrower needs to understand the scope of the loan and what is required of them and what it will and will not do. Unfortunately, though, that is where our agreement ends!

I do not know your social worker and I cannot comment on the circumstances his friend went through, but he did not give you accurate information on the HUD HECM Reverse Mortgage loan.

The Truth is, Title is YOURS.

Firstly, you are not selling your home. You always retain title, and the title passes to your heirs, not the bank, should you pass away. When you do finally move out of the house permanently, the loan does become due and payable…but only the amount you borrowed and any accrued interest.

In your example, you stated that if you passed just a month later, you lose your home, and the family loses all interest as well. This is not accurate, and I really hate to hear people who spread mistruths such as this.

Disbursement of Fund

There are several ways to receive your proceeds on a reverse mortgage, you can choose a lump sum distribution, a monthly payment, leave it in a line of credit you can access when you want or any combination of these choices. Once you start the loan, you pay interest only on the portion of the loan that you borrow.

In other words, if you have a Line of Credit available in the amount of $100,000 but you only take out $10,000 to do some work on your home, you only pay interest on the $10,000 you actually received, not on the money you have left in the line (just like a Home Equity Line of Credit or HELOC).

Again, using your example, if you passed one month after you got your loan, you family would have to pay the amount of the loan you took (10,000), any fees you financed and the interest that accrued which, at today’s rates would come to about $38 on those amounts.

You Own Your Home

Your family would have the right to decide if they wanted to pay the loan off and keep the house or to sell it and pay the loan in that way. But again, they would only pay any outstanding balance. Your assertion that you “sign a Deed” to the bank is untrue.

You do sign a Deed of Trust or Mortgage (depending on the state in which you live) to secure the loan, but you would sign the same sort of security instrument with any loan. It does not give the lender title to your property. I have seen so many articles written by people who heard something, did a halfway job of researching the loans that it is frustrating that there is so much misinformation available.

Here again, some unknown person who I cannot question to find out what really happened (if the person even exists and your friend wasn’t exaggerating) is used as an example of why people need to fear a reverse mortgage when the reported “facts” can’t even be true.

Counseling & Education

Do not get me wrong, the social worker may have known someone who had something happen, but it is like the old game of operator we all used to play as kids. By the last telling, not much of the statement is accurate. A reverse mortgage does require you to understand the terms and to do your homework.

But there are counselors approved by the Department of Housing and Urban Development (many of whom provide free counseling) who can tell you the real story of reverse mortgages so you can make an informed decision as to whether this is the right loan for you. Unfortunately, though, too many people hear horror stories like the one you just told that cannot even be true just based on the terms of the loan.

I would encourage you not to take my word for it (and certainly not the word of someone who has already given you totally false information), but contact HUD, AARP, or the National Reverse Mortgage Lenders Association (NRMLA) to get the REAL facts about reverse mortgages.

It may still not be the right loan for you, but at least you will have made that decision based on the knowledge of the truth about the way the program really works.

Top 5 FAQs

How do reverse mortgages really work?

A reverse mortgage is a loan that allows a homeowner to borrow money using their home as the collateral without the burden of having to make a monthly mortgage payment. This allows homeowners to access equity in their home without increasing their monthly expenses. The proceeds on a reverse mortgage can be used for whatever purpose the borrower chooses. The funds can be accessed via a line of credit, scheduled monthly payments, cash advances or a combination of these options.

Is a reverse mortgage a scam?

A reverse mortgage is not a scam. It is simply a loan that works in the opposite or “reverse” of a traditional loan. Instead of making monthly payments every month over a specified timeframe to pay the loan off, all interest and payments are deferred until the loan reaches maturity. This means the balance on the loan will increase over time rather than decreasing because you are not making a mortgage payment.

When is a reverse mortgage a good idea?

There are several instances when a reverse mortgage is a good idea for a homeowner. One of those is payment relief. If your current mortgage is too expensive to afford in retirement, the reverse mortgage may end up being the perfect solution to eliminating that expense from your budget to facilitate your retirement goals. Other instances include cash out for home remodel, additional funds for payment of taxes and home repairs in the future, preserving retirement assets such as 401K, IRA, and other savings and sometimes simply to improve overall quality of life.

Do you pay interest on a reverse mortgage?

A reverse mortgage is in fact a loan and therefore there is interest charged on a reverse mortgage. However, you are not paying the interest on a monthly or yearly basis like you would with a traditional mortgage. The interest on the reverse mortgage is added to the balance and is not actually paid until the loan is paid off either by sale, refinance, or other means.

What are the drawbacks to taking a reverse mortgage?

The downside of a reverse mortgage can be that the closing costs can be higher than a traditional loan, the property must be your primary residence, the loan is not assumable and there may be less equity to leave to your heir as an inheritance. On the Home Equity Conversion Mortgage (HECM) program, there is an initial mortgage insurance premium charged by HUD which is 2% of the property value or max claim (whichever is less) which leads to higher costs for these loans than a traditional loan.

It should be noted however that proprietary reverse mortgages have costs that are comparable and sometimes less than a traditional loan. When you have a reverse mortgage, the property must be your primary residence so if you have a reverse mortgage and want to move out of your home without selling it you would have to pay off the reverse mortgage before moving out. When a homeowner dies with a traditional loan, the heir can assume the loan and continue to make the payments on it to keep it in good standing.

With a reverse mortgage, the loan becomes due and payable upon the last surviving borrower leaving the home permanently so the heir cannot assume the reverse mortgage and must address it via selling the property, completing their own refinance of the loan, or paying it off by other means. Lastly, when you have a reverse mortgage your balance increases over time since you are not having to make a mortgage payment. This can lead to less equity in the home over time and therefore less of an inheritance for your heir.

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19 Comments on this Article

Bryce B.
October 19th, 2022

What is mortgage premium? MUTUAL OF OMAHA wants $19,416.00 on an initial line of credit of $221,237.48. The appraised property value of 1.5 million. They also want $6000.00 in origination fees. A are these fees, right?
Reply to Bryce
- ARLO™
  October 30th, 2022
  
  Hello Brice,
  
  No lender can alter the HUD mortgage insurance costs and that initial or UP-Front Mortgage Insurance Premium is required by HUD for all the HD/FHA insured loans. But you do have options.
  You can compare the loan to the jumbo or proprietary loan programs to see which works better for your goals and purposes. The proprietary programs are not HUD/FHA-insured Home Equity Conversion (HECM) reverse mortgage programs so there is no mortgage insurance.
  The trade-offs are that the loan amounts available with a proprietary loan will be higher than the HUD maximum of $970,800 for higher valued homes but the interest rates are also higher. You can get more money initially with a proprietary loan than with the FHA-insured HECM loans, but the proprietary programs may not work as well for line of credit requirements.
  But it never hurts to compare especially if initial costs are your primary concern. You may decide that the HUD program is the one that suits your needs the best but then again, you may determine that the proprietary programs are a better fit.
  Everyone's needs and goals are different and neither program is best in all cases. Only by knowing all the information can you make an educated decision about which program better meets your individual needs.
  Reply to ARLO
Cathy P.
October 1st, 2020

Thank you for information. Still a bit confused. I have a home valued around 200k. I owe my bank for mortgage of 102k. If I do a reverse mortgage through your firm does that move everything from my bank and your firm pays my bank balance due and distribute money to me.
Thank you
Cathy
Reply to Cathy
- ARLO™
  October 1st, 2020
  
  Hello Cathy,
  
  Any existing loan or liens would need to be paid in full of the reverse mortgage proceeds first.
  This would create a new loan on your property that would be a reverse mortgage, not requiring you to make any monthly payments on the loan (you would still be required to pay your property charges such as taxes, insurance and HOA if any).
  Any funds available to you through the reverse mortgage above and beyond the amount need to pay off the existing liens and the costs of the new loan are yours to use as you wish.
  I would suggest that you check out our online calculator to see what you might expect to receive on a reverse mortgage based on the HUD calculations for your age, property value and what you currently owe.
  Then you can decide if the loan is right for your circumstances.
  Reply to ARLO
  - Cheryl
    January 27th, 2023
    
    No one is talking about the interest that has to be paid back. If you borrow $75,000, by the time you have to pay back, you could owe $90,000?
    Reply to Cheryl
    - ARLO™
      January 31st, 2023
      
      Hello Cheryl,
      
      Yes, a reverse mortgage is a loan, it is not a grant therefore interest accrues on the balance owed. But although interest accrues on the funds you borrow, the amount that accrues is up to you because the amount you borrow and when is also up to you. You can limit the amount of interest in a few different ways. You could choose to take your reverse mortgage funds in a line of credit, then only draw funds as you need them if you don't need the entire $75,000 you reference to pay off existing loans.
      If you do not borrow all the money at the start of the loan, you do not accrue interest on the full balance, you would only accrue interest on that portion of the funds as you draw them. This means that you will be accruing interest at a much slower rate. You can opt for the Tenure payment that pays you a monthly payment. Here again, only accrues interest as the funds are paid to you.
      And finally, while there is never a payment required on the loan while you live in the property and meet the loan terms (pay your taxes and insurance in a timely manner as well as maintain the home in a reasonable fashion), you can also choose to pay any amount you desire up to and including payment in full at any time without penalty. In other words, you can pay the loan or any portion if you are able monthly to keep interest from accruing.
      
      The reverse mortgage is meant to be the last loan you will ever need, and most borrowers are more concerned with not having to make monthly payments of any kind while living in the home. However, if you want to pay a payment of some kind because you wish to pass the largest asset to heirs or want to move later and want to keep your balance down, you can certainly do this with any amount you choose, at any time and there is no penalty for doing it.
      To help you do it, you receive an amortization schedule at the start of the loan so you have an idea of how the loan will function and what you might want to do to keep the interest from accruing. I say "idea" because unless you have the fixed rate lump sum, that schedule will only be accurate until the rates change on a variable rate loan or you begin to access more money with future draws and the interest accrues at a different level than the schedule reflects.
      However, you also receive a monthly statement that will show you your balance, the amount of interest that accrued during that period, and any other pertinent information from the month. If you want to limit or eliminate any growth of the amount owed, you will always know what that amount is, and it is up to you if you want to pay it or not. Or you can take the money you would have paid and put it in an account for your own liquidity.
      Typically, you will not have the opportunity to get as good a return on savings as what you will accrue for interest on a home loan but that is a topic for discussion with your financial advisor and what options are available to you.
      Reply to ARLO
Robert A.
June 18th, 2020

That was a very helpful and concise assessment of reverse mortgages, without buying into the nightmare scenarios, which I'm sure can happen I suppose with "crooked" companies, I mean, I don't know what can be done dishonestly within the constraints of the law, and maybe with small print, but properly drafted and managed, I don't see why not, just as you explain. I'm sending this off to a friend of mine who is resisting reverse mortgage and absolutely needs it, there is no other way out for her. She lives in Cabot, Vermont.
Reply to Robert
- ARLO™
  June 23rd, 2020
  
  Hello Robert,
  
  You (or she) must just remember that it is a loan. Just like any other loan, you borrow money and interest accrues on the money you borrow. The difference is that there are no payments required and if you make no repayments during the life of the loan, the balance you owe grows instead of shrinking monthly as it would if you repaid the loan with monthly principal and interest payments as you would with a traditional loan.
  The costs for any FHA insured loan are higher because you must pay the FHA mortgage insurance but that mortgage insurance makes the loan available, insures that the funds are always available to the borrower and that the loan is non-recourse meaning the borrower or their heirs can never be made to pay more than the property is worth to repay the loan no matter what the loan balance may be or the value of the home. Therefore, the borrower does receive a benefit from the insurance.
  
  I have heard some say that since the balance is growing, the borrower is "giving away" their home because they owe more than what they borrowed. However, if you look at a typical amortization schedule for a 30 year fixed rate loan, depending on the interest rate, by the time you pay off that loan you may have paid up to 2 Â½ times the original amount of the money you borrowed by the time you pay the loan off.
  The only difference again is that you paid the money each month instead of allowing the balance to grow. And the great thing about a reverse mortgage is that if you can afford to make payments, you may do so with a reverse mortgage as well at any time without penalty.
  But since there is no payment "due", if you can't make a payment in any given month or not as much as a full payment of principal and interest would amount to, there are no negative ramifications including no late fees and no bad credit to worry about. Try sending a half payment to your forward lender and see if you owe a late charge or if you have a late payment showing on your credit. You would not with a reverse mortgage.
  
  The bottom line is that a reverse mortgage works well for some and does not meet the needs/goals of others. If you are one of those people who the loan does not work for you, I advise you not to get it. I would never try to talk someone into the loan if it does not work well for their needs or goals.
  But for those who do need it to age in place and that is what they really want to do, or those who need or want to use their equity for other purposes and cannot qualify for typical financing, etc. a reverse mortgage is a viable financial too.
  Reply to ARLO
- Patrice H.
  July 20th, 2020
  
  It all sounds so lovely, but I had the worst experience with trying and now I'm out $650. Terrible experience the bank The federal savings bank in Chicago ( should be called The Worst Bank of Federal Savings) a under writer demanded a 15.00 check copy made out to my hairdresser and demanded a 3 way conversation with a chase Visa card on a 50 buck owed balance I was contacted repeatedly for statements from my bank more than once I was integrated like I had committed a crime with the FBI and I have excellent credit And I managed to not only make my bank payments during the recession and didn't lose my home when no bank would refinance my loan that was Fanny Mae but the banks got a bail out from the president and my pay was frozen 7 years.
  
  The bank manager was never available for help or conversation. The reverse mortgage broker man wasn't computer savvy so he made endless appointments to my home for signatures on paperwork and he drove a truck with a big giant sign in the bed reading Reverse Mortgage broker so everyone knew my business when he drove to see me. I was turned down over lack of permits on an addition of a porch and bedroom that was not checked into prior. And the permits were found by me in the township permit office when they looked at the city of Prescott not the town the property was even at! I went no further with the 3-ring circus.
  
  Lost my hard earned money of $100.00 for a government demanded learning lesson that I was given a test on to receive a paper certificate for the bank and everyone to know I officially understood the process and the underwriting bank official had me get it changed 3 times to suit her specific requirements and each time it held up everything trying to reach the man who issued the certificate and I only could leave messages and he didn't reply to e mail for 3 weeks and unlike your info I was told I could not pay into it! My $550 inspection I paid for and lost money on was hired by someone do not know who, but he wasn't local It dragged on endlessly with questions after questioning from the underwriter. Also, just so you know my x mother in law did a reverse mortgage and her son contacted the bank about buying the home back for two years they have said they would get back to him but never do!
  
  So, if a bank can let a house sit empty after someone dies
  What was all the stuff investigation by the underwriter at the bank I unfortunately was stuck dealing with?
  Reply to Patrice
  - ARLO™
    July 20th, 2020
    
    Hello Patrice,
    I am so sorry you went through all the trials and tribulations with your chosen lender. This is one of the reasons we always tell people to check the ratings of the company with whom you plan to work and make sure you look at a rating source like the Better Business Bureau (BBB) or Google reviews where the lender cannot buy or alter the reviews they receive.
    So many of the "ratings" you see online are not actual rating agencies at all. They are companies who are advertisers who make money from you going to their site and their interest is not for you to see honest reviews from people who have used the lenders services. We are an A+ rated company with the BBB and are proud of that rating. We do no other loans other than reverse mortgages.
    If you decide to use a company like ours, you will not be dealing with a staff that works on refinances of other loans, 2nd trust deeds and other loan types as well as a few reverse mortgages here and there. As the name implies, at All Reverse Mortgage, Inc., the only loans we originate and close are reverse mortgages.
    I cannot guarantee you that you or your property meet the HUD requirements for the loan sight unseen. I can tell you that there is a lot easier way to find out, quickly, discreetly and without the hassle. Visit our website if you are curious and if you do decide to move ahead a second time, you can begin the entire process on line without a single neighbor knowing your business.
    But just as importantly, you can get answers to your questions without the hassle and from knowledgeable personnel.
    Reply to ARLO
Debbra M.
May 21st, 2020

Its awful when your taking care of the home and the owner due to illness. Then he dies where does that leave me a senior who has taken care of the homeowner for years. There's nothing I have to find a place to live that I can afford or it's being homeless
Which that is what looks like will happen to me. It's very sad
Reply to Debbra
- ARLO™
  June 29th, 2020
  
  Hello Debra,
  
  It really is sad when anyone is displaced from the spot, they have called home for years.
  I can only hope that by reading this, anyone else in your position now will take it to heart and make the proper arrangements before that time comes.
  Every homeowner with a reverse mortgage knows that when they are no longer living in the home as their primary residence, the loan becomes due and payable.
  In the case where there are others also living in the home that are not borrowers on the loan, the borrower and the others need to take steps in advance to be sure that they are covered when this time comes.
  
  Firstly, if the homeowner desires to leave the home to the individuals remaining in the home, they need to take care of those arrangements before the time comes when it is too late to do so.
  It is so easy to put things off but no one knows when something may happen that you are no longer able to sign legal documents due to death or incapacity and once that happens, it may be too late for the homeowner's wishes to be followed.
  Homeowners should make plans for who the house will pass to and set up a viable method to pass the title long before the time comes. An estate attorney can help with a trust or whatever you both deem is the best method in your state/area.
  
  Next, the people living in the home need to realize that the loan will become due and payable at that time and plan accordingly.
  This means that if you wish to keep the home, you will require the means to refinance the loan into a new loan in your name once you have the title to the property.
  If you do not have the means to secure a new loan, then you would need to sell the property and keep any remaining equity in it.
  If there is no equity in the home, you can continue to live in the home until the lender completes the foreclosure process at which time you would be required to leave.
  
  Occupants also living in a home with a reverse mortgage must realize that this will happen one day should the reverse mortgage borrower predecease them.
  Hopefully, the fact that there is no mortgage payment due on the reverse mortgage and that it ultimately takes about a year at least from the passing of the borrower before a foreclosure is usually completed, it will give you an opportunity to save funds for the relocation if you are not entitled to the property or there is no equity in the home.
  Other than that, I am sorry for your circumstances, but I have no other advice to give.
  Fortunately, you do probably have about a year (maybe more) with no mortgage or rent payments to prepare for the move but it would have been much better had you started earlier, when the owner was still alive and able to sign documents.
  Reply to ARLO
Gwendolyn M.
March 19th, 2020

My home was paid in full; I got a reverse mortgage because I was broke, I found where they had a check from me for $40,000 and a lien from me, they claimed I owed for $25,000. I sold the house they got 268,000 of the money, I only got $78,000. the closing paperwork said they got $456,000. have I been ripped off?
Reply to Gwendolyn
- ARLO™
  March 19th, 2020
  
  Hello Gwendolyn,
  
  I am sorry but I cannot determine from the information herein if there were any improprieties or mistakes. You received a monthly statement from the lender which showed your balance and all sums you received throughout the life of the loan. If those statements do not match the closing statement, in other words, your monthly statements showed you only owed one amount but your closing statement shows you paid off a completely different amount at closing, then perhaps you need to seek additional help from your closing agent.
  Your closing agent (escrow, title or attorney) can explain all the costs to you as well as go over the final demand from the lender to determine if there were any additional charges such as back taxes paid on your behalf by the lender that was included in your payoff. If after talking to the closing agent you feel that the amounts and charges assessed by the lender are wrong, you can always contact the lender to have them justify and if necessary, you can have an attorney contact them on your behalf.
  Reply to ARLO
iv
January 13th, 2013

People keep thinking they get a low amount when they get a reverse mortgage. Think about this; if your home apptaises for $100000, you will get about $55000 in a lump sum. Now that leave them a profit of about $45000 not counting the paperwork. You get to stay in the house which means you don't have to move and pay a note of about $800 average or more for the rest of your life. If you and your spouse lives around 15 years more, that comes up to $144000. So, add the two together, you got about $200000 for the place. DOUBLE what its worth. SO, when they sell it, they aren't really getting the best part of the deal. About the part of noone can get it after you die, so what. Sure an hier could use it, but I wouldn't plan on them being wise with it. If they want it, let them buy it from you now and give you the money or let them start making payments. You have to remember, its you who needs money for YOUR future, not theirs
Reply to iv
- ARLO™
  January 14th, 2013
  
  Hi David,
  
  Everyone has to consider their own needs and goals when considering whether or not to get a reverse mortgage. It is true that for many borrowers, if they consider the amount that they would pay elsewhere, the reverse mortgage can make them much better off than paying a monthly payment on another loan, especially in the instance we've just gone through where real estate values decline.
  Reply to ARLO
  - Linda S.
    February 3rd, 2020
    
    My mother did a reverse mortgage in 3007 and she passed away in 2015 my was suffering from Alzheimer and dementia and I didn't know it. She only got $45,000 now they said the total. Is $112,000 thousand dollars. I have been fighting them for 4yrs about.my mother house and they came to the center where she went every day and got those people to do this the paper said that I gave her 25000 thousand dollars.The doctor said that my mother had an MRI that was so bad and a lot going on in her head that no way it had just started had to been going on several years back which would have taken to the time that she did. The reverse mortgage and I got to refile my lawsuit because the attorney I had really didn't do her job she only made confirmation decisions with their lawyers and didn't have my interest at hard but I am not giving up.
    Reply to Linda
    - ARLO™
      February 7th, 2020
      
      Hello Linda,
      
      You can always question the mental state of your mom and the distributions of the reverse mortgage. There is no way for me to know if the lender also paid off an existing loan or if mom made any other withdrawals on the loan over its 8-year life before she passed.
      I am not an attorney so I cannot comment on any lawsuits you may be pursuing. I can say that mom would have had to complete the loan process as well as counseling by an independent, HUD approved counseling agency and so that might be a good place to start with the lender. Your attorney should verify that mom did complete all the loan papers as well as the HUD-mandated counseling.
      Other than that, I cannot comment on her state of mind 12 years ago or 8 years before she passed and unless you have information from her physician that she was not of sound mind prior to her completion of the loan, I am not sure how you will be able to do so either or how the doctor can possibly warrant her mental state from years ago.
      If this is her same physician, he should have records from them though that would be much more helpful though. If not, perhaps you can contact her physician from that time?
      Reply to ARLO
Ivyg Balliewdc
December 18th, 2012

It's a nice thought, but the truth about reverse mortgages is far from ideal. In fact, there are a few reasons to avoid getting a reverse mortgage as part of your retirement plan.
Reply to Ivyg

TRUTH ABOUT REVERSE MORTGAGES.

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