Reverse Mortgage FAQ

Please note that the answers to these FAQ’s relate to Reverse Mortgages that are Home Equity Conversion Mortgages (HECM) in the US unless stated otherwise.

A Reverse Mortgage is a loan for homeowners who are at least 62 years of age, which allows them to convert part of the equity from their primary residence into cash. (Investment Properties and second homes do not qualify) In the United States, the most popular type of reverse mortgage is a Home Equity Conversion Mortgage (HECM) fully insured by the Federal Housing Administration (FHA).

A Reverse Mortgage allows retires with limited income to access the equity in their homes to cover living expenses, health care costs or satisfy other financial needs without having to make monthly mortgage payments. The HECM is called a reverse mortgage because instead of making monthly payments to a lender, the lender makes payments to the borrower. There are no restrictions on how the funds may be used and the borrower is not required to pay back the HECM reverse mortgage loan until the home is sold or vacated. If the older borrower dies, the younger spouse may continue to live in the home without having to repay the reverse mortgage balance as long as the property taxes and homeowners insurance are paid and the home is maintained to a reasonable level. Any home association dues (HOA Fees) must also be paid if applicable.

To qualify for a reverse mortgage, you must be at least 62 years old and own a home with significant equity. Many seniors are not able to refinance their homes or qualify for a new mortgage because they are retired and do have the income to help prove they are able to pay back the loan. A reverse mortgage allows homeowners to remain homeowners, continue living in their home and have access to the equity in their home. Payment options include monthly payments, line of credit, single lump sum cash-out, or a combination of these. Borrowers will not have to repay the loan until BOTH of the spouses have died, the home is sold, or if the loan terms are not complied to such as continuing to pay the property taxes, home insurance, maintaining the home and paying any HOA dues if applicable. They borrowers must also continue living in the home as their primary residence.

Reverse Mortgages are not for everyone, but if you answer yes to more than one of these questions, it may be for you:

Are you over the age of 62?

Do you own a home with significant equity?

Do you want to remain living in your home and don’t plan to move out?

Do you need money now to pay for your most important expenses?

Do you want an emergency fund you can use when you need it?

Does your younger spouse want to continue living in the home if the older borrower dies?

Do you want a more meaningful and fulfilling retirement?

If we determine that you are a qualified candidate for a reverse mortgage, you will be required to speak with a 3rd party HUD approved counselor via telephone or in person. The HUD counselor will provide an overview of the reverse mortgage and answer any questions for you. Their job is to fully ensure you understand the terms of the reverse mortgage and your obligations.

You may now apply for the reverse mortgage loan and complete the application.
A Home Appraisal will be performed to determine the value of your home so that the loan amount can be calculated. Once the licensed appraisal is complete, the loan will go to “underwriting”.

The funds are tax-free and may be distributed as a lump-sum advance, monthly payments, line of credit or a combination of these options. You may use the funds for whatever you wish with no restrictions and you will not have to worry about paying any bills.

All HECM reverse mortgage loans are fully backed and insured by the Federal Housing Administration (FHA). This protects borrowers in the unlikely event of the loan amount exceeding the value of the home which may occur with a significant real estate crash or if the younger spouse outlives the loan. This means that younger spouse may continue to live in the home (with no loan payments) if the older spouse passes away as long as they comply with the loan terms. No loan repayments are required as long as you live in your home.

HECM stands for Home Equity Conversion Mortgage which is the most popular type of reverse mortgage in the United States. HECM Reverse Mortgages are fully regulated and insured by the Federal Housing Administration (FHA) to protect the consumer. An HECM loan has two options the consumer may choose from:

  1. Payment Of Loan Proceeds: The borrower may receive the loan money as a lump sum, monthly payments, line of credit, or a combinations of these payment options.
  2. Interest Rate: You may choose between a fixed or a variable interest rate for HECM Reverse Mortgages depending on your needs. Please note that fixed interest rates are only available with a limp sum payment.

There are two special-purpose loan options with the HECM Reverse Mortgage:

  1. HECM For Purchase: HECM for Purchase allows borrowers to purchase a home using the money from an HECM Reverse Mortgage loan.
  2. HECM For Refinance: HECM Refinance allows one HECM loan to be converted into another HECM loan. This usually takes place after the value of the home goes up in order to get a lower interest rate or borrow more cash.

A Reverse Mortgage is a loan for homeowners who are at least 62 years of age, which allows them to convert part of the equity from their primary residence into cash. (Investment Properties and second homes do not qualify) In the United States, the most popular type of reverse mortgage is a Home Equity Conversion Mortgage (HECM) fully insured by the Federal Housing Administration (FHA).

A Reverse Mortgage allows retires with limited income to access the equity in their homes to cover living expenses, health care costs or satisfy other financial needs without having to make monthly mortgage payments. The HECM is called a reverse mortgage because instead of making monthly payments to a lender, the lender makes payments to the borrower. There are no restrictions on how the funds may be used and the borrower is not required to pay back the HECM reverse mortgage loan until the home is sold or vacated. If the older borrower dies, the younger spouse may continue to live in the home without having to repay the reverse mortgage balance as long as the property taxes and homeowners insurance are paid and the home is maintained to a reasonable level. Any home association dues (HOA Fees) must also be paid if applicable.

  • You are able to access the cash in your home and use it to pay for anything you like now
  • You will not have to make any mortgage payments
  • Flexible disbursement of the funds with different options
  • No loan repayments are required as long as you continue to live in the home
  • You will remain the home owner and on title.
  • All the money you receive from a reverse mortgage is tax-free
  • The younger spouse continues to live in the home if the older spouse dies with no payments required
  • Heirs still inherit the remaining home equity after paying off the reverse mortgage loan
  • Interest rates on a reverse mortgage are much lower than other options such as car loans or credit card debt.
  • Reverse mortgages are fully insured and regulated by the United States Federal Government’s Federal Housing Administration (FHA). This protects borrowers in the unlikely event of the loan amount exceeding the value of the home which may occur with a significant real estate crash or if the younger spouse outlives the loan.
  • The fees for reverse mortgages are regulated by the HUD (US Department of Housing & Urban Development) with limitations and may be paid out of the loan proceeds. The only expenses you will likely incur are the appraisal fee and counseling fee which should total less than $500.
  • You may choose to repay the reverse mortgage loan at any time without incurring any additional costs or penalties.
  • You may be able to delay and increase your social security benefits.

  • The federal government strictly regulates reverse mortgages. Borrowers must qualify and meet the Home Equity Conversion Mortgage (HECM) requirements.
  • You must have sufficient in your home to qualify for a reverse mortgage
  • The value of your estates inheritance may decrease over time as the money from the reverse mortgage loan is spent
  • You will still need to pay the Federal Housing Administration (FHA) mortgage insurance premium, appraisal fee, counseling fee, loan origination fee and other closing costs. However, your upfront costs will likely be less than $500 since the remaining fees may be paid from the reverse mortgage loan. HECM Reverse Mortgages are FHA insured and regulated by the US Federal Governments Department of Housing and Urban Development (HUD) with strict government-mandated caps on the origination fees and percentages.
  • Borrowers must undergo an independent, third-party counseling session to ensure they fully understand the terms of the reverse mortgage and their obligations. (i.e. continuing to pay their property taxes, home owners insurance and maintain the home, plus any HOA fees if applicable)
  • Medicaid and other asset-based benefits may possibly be affected.   Social Security, Medicare or Pension benefits will NOT be affected as a result of a reverse mortgage.
  • You must continue to live in the home as your primary residence and not sell the home; otherwise the reverse mortgage loan will need to be repaid.
  • Only your primary residence may qualify for a HECM reverse mortgage. Vacations homes and investment homes are not eligible for a reverse mortgage.

No, the bank will not own your home with a reverse mortgage. You will continue to retain the title to the property and own your home. However, you must continue to pay for property taxes & insurance, maintain the home and if applicable, continue to pay HOA dues.

  1. You must be 62 years of age or older (a non-borrowing spouse may be under 62 years old)
  2. You must own your own home with significant equity
  3. You must live in the home as your primary residence (No Secondary Homes or Vacations homes)
  4. You must meet the simple financial requirements of the HECM program

During the reverse mortgage loan period which may last as long as the younger second borrower dies, the borrowers are required to pay for the following three expenses:

  1. Property Taxes
  2. Homeowners Insurance
  3. Basic Home Maintenance and any HOA DUES if applicable

No, reverse mortgages can be used as a powerful and financially intelligent tool in terms of retirement planning and having access to emergency cash when needed.

Yes, you may still qualify for a reverse mortgage if you have an existing mortgage. However, the reverse mortgage must have the 1st lien position so any existing mortgage must be paid off. Most borrowers will pay off their existing mortgage with the reverse mortgage loan proceeds.

No, a reverse mortgage will not affect your social security and medicare benefits. However, Medicaid and Supplemental Security Income (SSI) may be affected.

Payment options include monthly payments, line of credit, single lump sum cash-out, or a combination of these.

A reverse mortgage loan is typically repaid when the last borrower leaves the home for greater than 12 months or passes away. The home is usually sold and the proceeds are used to pay back the reverse mortgage loan. Any remaining equity after the loan is repaid goes to the heirs. The heirs may also choose to keep the home, however the reverse mortgage loan must be repaid.   The heirs may also pay back the loan by refinancing or with a conventional mortgage loan.

Older borrowers with significant equity in their home generally will receive more money from a reverse mortgage loan. Various factors go into calculating the amount of money you may receive from a reverse mortgage including your age, appraised home value, interest rates and the FHA lending limit of $636,150. (Updated January 1 2017) If the value of your home is higher than $636,150, the amount of funds you received will be based on the $636,150 loan limit. However, Jumbo Reverse Mortgages are now available for qualified borrowers for properties valued at up to $6 million.

Visit Our Reverse Mortgage Calculator Page To Get An Estimate On How Much Money You Can Get.

*Please note that only 60% of the available funds may be accessed within the first 12 months after closing to be charged the 0.5% MIP rate. In month 13, a borrower may access as much or as little of the remaining funds available to them as they wish. If over 60% of the funds are accessed within the first 12 months the MIP rate will be 2.5%.

Yes, the funds from a reverse mortgage may be used as you wish with no restrictions. You may use the money to help cover your daily living expenses, supplement your retirement income, take more vacations, repair or renovate your home, help pay for health care expenses, pay off existing debt with high interest rates or even pay your taxes.

Interest is only charged on the funds that you receive or borrow for a reverse mortgage.   Fixed and variable interest rates are available and rates are tied to an index such as the LIBOR (London Interbank Offered Rate) or 1 year Treasury Bill, plus a margin that usually adds 1-3% onto the rate you are charged.

Yes. When the older borrower dies, the younger spouse may continue to live in the home (with no loan payments) as long as they pay their property taxes, homeowners insurance, and maintain the home to a reasonable level. HOA dues must also be paid if applicable.   This protection came into effect on April 25th, 2014 when the FHA revised the HECM age eligibility requirements to extend protections to spouses younger than 62 years old.

Reverse Mortgage borrowers are all provided with a Right of Rescission under Regulation Z of the federal Truth in Lending Act. This give you the right to cancel the reverse mortgage loan within three business days from the loan closing date. Lenders must not charge interest on the funds which are held available for you during this 3 day rescission period. Interest is accrued on the day after the disbursement of funds are complete. All reverse mortgage borrowers must be given a copy of the Notice of the Right of Rescission at closing which must be signed and dated.

The first lien position will go to your lender of the reverse mortgage, while the second lien position goes to the Federal Housing Administration (FHA). If your first position lender fails to meet it’s obligations under the terms of the Loan Agreement, the FHA may step in and take responsibility for the reverse mortgage loan. This ensures you continue to receive uninterrupted access to your reverse mortgage funds.

Yes. In 1987, the Federal Housing Administration (FHA) authorized federal insurance for all HECM reverse mortgages with the Housing and Community Development Act. This ensured the availability of funds for reverse mortgage borrowers and assured compensation to the lender in the unlikely event that the loan amount exceeded the value of the home. This protects borrowers and lenders in the unlikely event of the loan amount exceeding the value of the home which may occur with a significant real estate crash or if the younger spouse outlives the loan. This means that younger spouse may continue to live in the home (with no loan payments) if the older spouse passes away as long as they comply with the loan terms.

If you choose the monthly payment option for your reverse mortgage, your first monthly payment will be send to you on the first business day of the month after your reverse mortgage loan funding date. For example, if your loan funded in April, then your first monthly payment will be sent to you on the first business day of May.

Yes, you may make prepayments or pay off the reverse mortgage loan in full if you choose to do so without any penalty. However, this is not necessary or required since the loan is not due until the last remaining borrower dies or moves out of the home for more than one year, sells the home or does not comply with the loan terms like paying the property taxes, insurance and maintenance.

The following types of properties may qualify for a reverse mortgage: single-family homes, 2-4 Unit properties, manufactured homes built after June 1976, condominiums, townhomes. Please note that co-ops do not qualify.

Mobile homes are generally not eligible for reverse mortgage, however, some HUD-approved manufactured homes that meet FHA requirements are eligible. The HUD has certain criteria for eligible manufactured homes that must be met

Some reverse mortgages may have a repair rider requirement in order for the loan to be issued. This means that certain repairs to the property must be completed and meet the lending standards before the funds are disbursed. Repair Riders must be complete with a certain timeframe and is considered an additional term to the reverse mortgage loan agreement. A “Repair Set Aside” is a portion of your funds that are used to complete the required repairs. This “set aside” is not part of the loan balance until the day the funds are actually disbursed. After the repairs have been completed, your loan servicer will arrange to have an inspection for the repair work to ensure the repairs have been successfully completed.

One of the rules for reverse mortgages is that the borrower must continue to live in their home and use it as their primary residence.   This means that you will be required from time to time to complete, sign and return an “Occupancy Certificate” to the loan servicer.

Yes, are you required to continue paying your property taxes. If you fail to pay for your property taxes, the loan will be in default and will be due and payable. The reverse mortgage servicer may pay your property taxes on your behalf. An amount required to pay your taxes will be set aside from the loan proceeds to pay for your property taxes.

Yes, you are required to pay for home insurance with a reverse mortgage. Hazard insurance is always required and must be an amount equal or greater than the value of your property. Flood insurance may also be required if your home is located in an area prone to flooding as determined by the Federal Emergency Management Agency (FEMA).

What is a reverse mortgage maturity event?

A reverse mortgage maturity event is when the loan become due and payable. Once the maturity event has been reached, no additional funds may be issued from the reverse mortgage. A maturity event occurs when:

  1. All borrowers have sold or transferred the tital of the property to a 3rd
  2. One of the borrowers no longer occupies the property as their primary residence for any reason other than death
  3. When the property taxes and insurance are not paid and all attempts to provide a solution have failed
  4. All borrowers have passed away
  5. The property is in disrepair and the borrower refuses or is unable to repair the property
  6. The borrower doesn’t maintain the property as their primary residence for a period greater than 12 months because of a physical or mental illness

All HECM Reverse Mortgages are “non-recourse” loans fully regulated and insured by the FDA. This means that you can never owe more than the value of the home. In the unlikely event of a severe real estate crash or if the younger borrower outlives the loan, you or your heirs are protected and will never owe more than the value of your property. The reverse mortgage debt may be satisfied by either paying 95% of the current appraised value of the home or paying the mortgage balance.