Reverse Mortgage Guide
Reverse Mortgage Overview
Educational information about Reverse Mortgages (HECM), their characteristics, eligibility requirements, and general considerations for homeowners age 62 and older.
Disclaimer: This website provides general mortgage and financial information for educational purposes only. It does not constitute financial, legal, or mortgage advice. Housentia is not a licensed mortgage broker, lender, or loan originator.
What is a Reverse Mortgage?
Home Equity Conversion Mortgage (HECM):
A reverse mortgage is a type of home loan that allows homeowners age 62 and older to convert part of their home equity into cash. Unlike a traditional mortgage where you make monthly payments to the lender, a reverse mortgage allows you to receive payments from the lender while you continue to live in your home.
The only reverse mortgage program insured by the U.S. federal government is the Home Equity Conversion Mortgage (HECM), which is available only through FHA-approved lenders. HECM loans are insured by the Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD).
With a reverse mortgage, you typically don't have to make monthly mortgage payments as long as you live in the home, pay property taxes and homeowners insurance, and maintain the property. The loan becomes due when you move out, sell the home, or pass away.
Key Characteristics of Reverse Mortgages
Age Requirement
Reverse mortgages are available to homeowners who are 62 years of age or older. All borrowers listed on the home's title must meet this age requirement.
Note: If you have a spouse who is under 62, they may not be able to be on the loan, which could affect their ability to remain in the home if you pass away first.
Loan Amount Factors
The amount you can borrow depends on several factors, including your age (or the age of the youngest borrower), the current interest rate, the appraised value of your home, and the FHA mortgage limit in your area.
Note: Generally, the older you are and the more valuable your home, the more you may be able to borrow.
No Monthly Mortgage Payments
As long as you live in the home and meet your obligations (property taxes, insurance, maintenance), you typically don't have to make monthly mortgage payments. The loan balance grows over time as interest accrues.
Important: You must continue to pay property taxes, homeowners insurance, and maintain the property. Failure to do so could result in default and foreclosure.
Home Ownership Retained
You retain ownership of your home with a reverse mortgage. The lender has a lien on your home, but you remain the owner and can live in the home as long as you meet the loan requirements.
Note: The loan becomes due when you move out permanently, sell the home, or pass away. At that time, the loan balance (principal plus accrued interest) must be repaid.
How You Can Receive Funds
With a reverse mortgage, you can typically choose how to receive your funds. Common options include:
1. Line of Credit
Access funds as needed, up to your credit limit. The unused portion of your line of credit may grow over time, potentially increasing the amount available to you.
2. Monthly Payments
Receive fixed monthly payments for a specific period (term payments) or for as long as you live in the home (tenure payments).
3. Lump Sum
Receive all available funds in a single payment at closing.
4. Combination
Combine any of the above options to meet your specific needs.
Note: Payment options and availability vary by lender and loan program. Consult with your lender about which option may be best for your situation.
Eligibility Requirements
To be eligible for a HECM reverse mortgage, you must generally meet the following requirements:
- Age Requirement: You must be 62 years of age or older. All borrowers listed on the home's title must meet this requirement.
- Home Ownership: You must own your home outright or have a significant amount of equity. If you have an existing mortgage, the reverse mortgage proceeds may be used to pay it off.
- Primary Residence: The home must be your primary residence. Investment properties and vacation homes are not eligible.
- Property Type: Eligible property types include single-family homes, 2-4 unit properties (if you live in one unit), FHA-approved condominiums, and manufactured homes that meet FHA requirements.
- Financial Assessment: You must demonstrate the ability to pay property taxes, homeowners insurance, and maintain the property. Lenders will review your credit history and residual income.
- HUD-Approved Counseling: You must complete counseling with a HUD-approved housing counseling agency before applying for a reverse mortgage. This counseling helps ensure you understand the loan terms and alternatives.
Important: These are general guidelines. Actual eligibility requirements may vary by lender and situation. Always consult with HUD-approved counselors and licensed mortgage professionals for personalized information.
Costs and Fees
Understanding Reverse Mortgage Costs:
Reverse mortgages can have various costs and fees, similar to traditional mortgages. It's important to understand all costs before proceeding.
Common costs associated with reverse mortgages may include:
- Origination Fee: A fee charged by the lender for processing the loan
- Mortgage Insurance Premium (MIP): An upfront premium and ongoing annual premium paid to FHA
- Third-Party Fees: Appraisal fees, title insurance, recording fees, and other closing costs
- Servicing Fee: A monthly fee charged by the loan servicer
- Interest: Interest that accrues on the loan balance over time
Note: Many of these costs can be financed into the loan, meaning you don't have to pay them out of pocket. However, financing costs reduces the amount of cash available to you. Always review the loan estimate and closing disclosure carefully to understand all costs.
When the Loan Becomes Due
A reverse mortgage loan becomes due and payable when one of the following occurs:
- Last Surviving Borrower Moves Out: If you (and your spouse, if applicable) move out of the home permanently, the loan becomes due. This includes moving to a nursing home or assisted living facility on a permanent basis.
- Last Surviving Borrower Passes Away: When the last borrower on the loan passes away, the loan becomes due.
- Property is Sold: If you sell the home, the loan must be repaid from the sale proceeds.
- Default on Loan Obligations: If you fail to pay property taxes, homeowners insurance, or maintain the property, the lender may declare the loan due.
Repayment Options: When the loan becomes due, you or your heirs typically have several options:
- Pay off the loan balance and keep the home
- Sell the home and use the proceeds to pay off the loan (any remaining equity goes to you or your heirs)
- Sign over the property to the lender (if the loan balance equals or exceeds the home's value)
Important: You or your heirs are never required to pay more than the home's value, even if the loan balance exceeds it. This is because HECM loans are non-recourse loans, meaning the lender's only recourse is the property itself.
Considerations for Homeowners
Potential Advantages
- Access to home equity without monthly mortgage payments
- Can remain in your home as long as you meet loan obligations
- Flexible payment options (line of credit, monthly payments, lump sum, or combination)
- Loan proceeds are generally not taxable as income
- Does not typically affect Social Security or Medicare benefits
- Non-recourse loan (you or your heirs won't owe more than the home's value)
- Can use funds for various purposes (home repairs, living expenses, healthcare, etc.)
Important Considerations
- Loan balance grows over time as interest accrues, reducing home equity
- Must continue to pay property taxes, homeowners insurance, and maintain the property
- May affect eligibility for need-based government programs (SSI, Medicaid)
- Upfront and ongoing costs (MIP, origination fees, servicing fees)
- Less equity available for heirs when you pass away
- If you move out permanently, the loan becomes due
- Spouse under 62 may not be able to remain in home if you pass away first (unless they're on the loan)
- Requires HUD-approved counseling before application
Alternatives to Consider
Other Options to Explore:
Before deciding on a reverse mortgage, you may want to explore other options for accessing home equity or supplementing retirement income:
- Home Equity Loan or HELOC: Traditional home equity borrowing options
- Downsizing: Selling your current home and purchasing a smaller, less expensive home
- Renting Out a Portion: If you have extra space, renting out a room or unit
- Government Assistance Programs: Programs for seniors that may help with housing costs
- Family Support: Discussing financial needs with family members
Remember: A reverse mortgage is one option among many. Each person's situation is unique, and what works for one person may not be appropriate for another. Consulting with HUD-approved counselors, financial advisors, and family members can help you make an informed decision.
Additional Resources
For official reverse mortgage information and resources, you can visit:
- HUD - Home Equity Conversion Mortgage (HECM) Information
- Consumer Financial Protection Bureau - Reverse Mortgages
- HUD - Find a Housing Counselor
- HUD - Reverse Mortgage Guide for Senior Homeowners
Important: HUD requires that all reverse mortgage applicants complete counseling with a HUD-approved housing counseling agency before applying. This counseling is designed to help you understand reverse mortgages and explore alternatives.
Ready to Learn More?
Connect with licensed mortgage professionals who specialize in reverse mortgages and can provide personalized information about your eligibility and options. Remember, HUD-approved counseling is required before applying.