A reverse mortgage is a loan for homeowners age 62 and older that requires no monthly mortgage payments. The loan is repaid when the borrower passes away, leaves the home permanently or sells. Available funds are distributed as a lump sum, line of credit or structured monthly payments.

What it is 

  • A loan against your home’s equity
  • No monthly mortgage payments required
  • Designed to meet the needs of retirees on fixed incomes
  • Tax-free cash for virtually anything

What it’s NOT

  • Selling your home to the bank
  • Relinquishing title or ownership rights
  • Right for everyone

The most common type of reverse mortgage is the Home Equity Conversion Mortgage, or HECM, a program the Federal Housing Administration created in 1988.

While a traditional loan requires scheduled monthly payments, reverse mortgages are not repaid until the loan reaches maturity.

The bank does not own your home, YOU do.

With a reverse mortgage, you continue to own your home.

Like any mortgage, you will receive a monthly statement outlining all interest charges and balance information.

You will continue to pay your property taxes and homeowners insurance.

The only difference will be the absence of a coupon to return your monthly payment. Why? Because no payment is necessary.

At any time, you are welcome to repay the interest charges partially or in full without penalty.

You’re in the driver’s seat.

You can choose to make voluntary repayments of the mortgage interest in part or full without penalty.

You can also deduct the interest just as you would a traditional home loan (consult your tax professional), and you can pay off the loan at any time with cash by refinancing with another loan refinancing or by selling the home.

Qualifications

With Financial Assessment, HUD began underwriting borrower credit and income to see that borrowers have the willingness and ability to pay their taxes & insurance.

HUD requires borrowers to have a small residual income available to them after all property charges are considered.

Residual income is the amount of money you must have left over each month after debts and property charges are paid.

Required HUD counseling

The Federal Housing Administration wants you to fully understand the reverse mortgage and requires all applicants to receive independent third-party counseling by phone or in person.

Once you’ve received the counseling you will receive a certificate of completion which is then signed and delivered to your lender of choice.

Important Questions & Considerations 

How much can you get? 

The maximum loan amount you may qualify for is based on the youngest homeowner’s age, current interest rates, and your home value.

The amount of money you may borrow is generally 50% of your home value.

If your home value is $726,525 or less, the federally insured-HECM will likely meet your needs.

If your home value exceeds the national 2019 lending limit of $726,525 you will generally receive a larger benefit/payout on our new Jumbo Reverse Mortgages.

Is a reverse mortgage right for you?

Anyone who has desires or needs that cannot be met with their current income levels should consider a reverse mortgage.

It is a great tool to help you stay in the home you love or to simply enhance your retirement years.

Who is it NOT for?

Because there are some closing costs setting up a reverse mortgage, these loans are not recommended for those who plan to move within a few years — such as people who might require imminent care in a nursing home or inpatient facility.

Can I prepay the loan without Penalty?

Yes! You can choose to pay the loan at any time without penalty. 

Unless you repay your mortgage voluntarily, your loan is not due until the last surviving spouse no longer occupies the property as their primary residence.

Your heirs will have up to 12 months to complete a sale or refinance the transaction to repay the balance of the loan.

If your heirs choose not to act, the reverse mortgage lender will have no choice but to foreclose on the home.

What about income taxes?

Funds you receive from a reverse mortgage loan are not considered income and are therefore non-taxable.

Will it affect Social Security or Medicare?

Reverse mortgages do not affect public benefits such as Social Security and Medicare. However, the proceeds can impact eligibility for those who are receiving “needs-based” state or local assistance.

This is not specific to a reverse mortgage as any excess funds can change the qualifications on these types of programs.

What are the qualifications?

In 2014, the FHA introduced “Financial Assessment” to the reverse mortgage program, which requires lenders to check a borrower’s ability to repay their ongoing obligations such as property taxes and homeowners insurance.

If within the past 24 months you have had no late payments on property charges or other consumer credit and meet FHA’s residual income, you should have no problem qualifying for a reverse mortgage.

Summary: 

  • A reverse mortgage is a loan against your home that requires no monthly mortgage payments.
  • You’ll need roughly 50% equity in your home to be eligible.
  • Any remaining equity belongs to your heirs
  • If the home is upside down there is no recourse to your family.

How can you get started?

Like any mortgage, it pays to shop around. Compare offers from banks and non-bank lenders and don’t be fooled by these common sales pitches:

“They’re all the same” or “We service our own loans.”

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