What You Should Know About Reverse Mortgages

Reverse Mortgages vs. Traditional Mortgage or Home Equity Loans

A reverse mortgage is the opposite of a traditional mortgage. With a traditional mortgage, you borrow money and make monthly mortgage payments.

However, in a reverse mortgage, you basically receive money from the lender and don't have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you pass away, sell your home, or no longer live there as your principal residence.

Eligibility Requirements

The eligibility requirements are quite simple. There is no income, employment or credit qualifying.

  • All homeowners must be 62 or older and occupy the property as their principal residence
  • The home must be owned free and clear, or have a remaining mortgage balance which can be paid off by a reverse mortgage
  • The property must be a single-family or a two-to-four unit dwelling
  • Townhomes, detached homes, condominium units, planned unit developments and some manufactured homes are eligible
  • The home must meet HUD minimum property standards

How Much Can Be Borrowed?

The maximum amount that can be borrowed is based on the several factors:

  • The age of the youngest borrower when loan is taken out
  • The appraised value of the home
  • The current interest rate
  • Amount of equity in your home
  • Mortgage program and options chosen

Usually, the more your home is worth, the older you are, and the lower the interest rate is, the more you'll be able to borrow.

Four Important Things You Should Do Before Getting a Reverse Mortgage

  • Determine if you really need a reverse mortgage or if another type of loan would be better for you. Depending upon your needs and your financial situation, you may be able to meet your goals with another financial solution.
  • See a HUD-approved reverse mortgage counselor - for a fee - to help you decide if a reverse mortgage is for you, or to help you choose among the different types of reverse mortgages. The Federal Government has made it mandatory that each Reverse Mortgage applicants go through independent third-party counseling. This is simple and stress-free process, and can be done in person or over the telephone. We can provide you a list of names and phone numbers of HUD counselors in your area.
  • Shop around and compare! Not all reverse mortgages are created equal. They vary substantially in how much cash you can get, what they cost and other features.
  • Consider whether a reverse mortgage might make you ineligible for any public benefits you now receive or may be eligible to receive in the future. For example, if you currently receive or expect to be eligible for any "needs-based" benefits such as Medicaid, MediCal, or Supplemental Social Security Income (SSI), reverse mortgage payments will have to be structured so that monthly payments will be spent within the month they are received. If not, such payments will be considered "income," and may make you ineligible for public benefits. You should always contact your benefits provider to ask about how a reverse mortgage may affect your eligibility.

Consumer Protections

  • Asset protection - non-recourse loan - the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt. This applies only when the borrower or estate choose to sell the property to pay off the reverse mortgage loan. If the borrower or estate want to retain the property the balance must be paid in full
  • Approved counseling required for all reverse mortgage loans
  • Adjusted interest rates have lifetime caps
  • After estate pays lender, any remaining equity is paid to heirs or estate
  • No maturity date - a reverse mortgage cannot become due during the borrower's lifetime