Reverse Mortgage

Last Updated: 03/24/2024

Loan Highlights

Homeowners aged 55 and older who own their homes outright or have significant equity.
Those seeking to convert home equity into tax-free cash without selling their homes.
Seniors who plan to stay in their homes long-term and need additional income or funds for expenses.
Reverse Mortgages are tailored for seniors looking to access the equity in their homes while maintaining ownership.
Suitable for retirees seeking to supplement retirement income, cover healthcare expenses, or finance home improvements.
Depends on factors such as the borrower’s age, home value, and current interest rates, but can range from tens of thousands to several million dollars.

Federal Fund Rate + 1.50% Margin

*The mortgage interest rate calculation above is estimated. The subject borrower for that interest rate is as follow:

No monthly mortgage payments required as long as the borrower remains in the home.
Loan proceeds can be received as a lump sum, monthly payments, line of credit, or combination.
Interest accrues on the loan balance over time and is typically repaid when the borrower moves out, sells the home, or passes away.
Borrowers are still responsible for property taxes, homeowners insurance, and maintenance (can be covered by the lender if there’s enough equity).

Age requirement: Borrowers must be at least 55 years old.
Homeownership: Borrowers must own their homes full and clear or have significant equity (minimum 45% equity).
Occupancy: The home must be the borrower’s primary residence.
Financial assessment: Lenders may evaluate the borrower’s income, assets, and credit history to ensure they can meet ongoing expenses.
Counseling: Borrowers are required to attend counseling sessions with a HUD-approved counselor to discuss the risks and benefits of a reverse mortgage.
Documentation:
- Typical Documents: Full documentation (full docs) including proof of age, homeowners insurance, property tax information, and financial information.
- Counseling certificate indicating completion of required counseling sessions is also required.

Home Equity Conversion Mortgage (HECM): Federally-insured reverse mortgages regulated by the Federal Housing Administration (FHA).
LESA (Life Expectancy Set-Aside): Offered by Federal Housing Administration to additionally cover for the property tax and homeowners insurance throughout the estimated life of the loan.
Proprietary Reverse Mortgages: Offered by private lenders and may have different terms and requirements compared to HECMs.
Single-Purpose Reverse Mortgages: Offered by state or local government agencies or nonprofit organizations and are intended for specific purposes, such as home repairs or property taxes.

Reverse mortgages are typically funded by private lenders, banks, and credit unions, with HECMs insured by the FHA.

Common misunderstandings with reverse mortgages include:
- Loss of home ownership: Borrowers retain ownership of their homes with reverse mortgages, but they must continue to pay property taxes, homeowners insurance, and maintenance costs.
- Impact on heirs: Borrowers' heirs have the option to repay the reverse mortgage and keep the home or sell the home to repay the loan balance. Any remaining equity belongs to the borrower or their heirs.
- Loan costs: Reverse mortgages may come with upfront costs, including origination fees, closing costs, and mortgage insurance premiums, which can affect the amount of funds available to borrowers.