What is a Reverse Mortgage?

Reverse mortgages are increasingly popular among seniors, and it’s no wonder why! This innovative loan enables homeowners aged 62 and above to convert their home equity into cash income, potentially enriching their retirement lifestyle.

Interested in exploring your options? Reach out to David Blatt today to discuss your financial objectives and determine if a reverse mortgage is a suitable solution for you.

How can a reverse mortgage could benefit you?

We understand that making significant financial decisions, especially concerning your home, can be daunting. After all, your home is often your most substantial investment and holds countless cherished memories. That’s why we aim to empower you with the knowledge necessary to assess if a reverse mortgage aligns with your family’s unique circumstances.

The following information serves as a valuable resource as you consider this option. A reverse mortgage is a specialized loan product designed specifically for homeowners aged 62 and older. It enables you to access your home equity in various ways, such as lump sums, monthly payments, or a line of credit. One of its primary advantages is that repayment isn’t due until you no longer reside in the home, the last surviving borrower passes away, or the loan terms are no longer met. These terms typically include maintaining the property and staying current on property taxes and insurance, especially for FHA-insured HECM loans.

We hope this information lays a solid foundation for your research. Remember, the best decision is one that aligns with your unique needs and goals.

Types of Reverse Mortgage Loans:

There are primarily two types of reverse mortgages to consider: FHA-insured HECM loans (Home Equity Conversion Mortgage) and jumbo or proprietary loans¹ designed for high-value homes.

As reverse mortgage specialists, we’re here to guide you through the process and help you determine if a reverse mortgage aligns with your financial goals. Count on us to provide you with all the information you need to make an informed decision that benefits you and your family. From start to finish, expect top-notch service and support.

Qualifications for Reverse Mortgage Loans:

To qualify for a reverse mortgage loan, there are some basic requirements:

At least one borrower (who will be on the title) must be at least 62 years old (unless in the state of Texas, where both borrowers must be 62 years old at loan closing).

The home must be the primary residence of the borrower/s for at least 6 months per year.

There must be sufficient equity in the home. While there’s no specific equity amount required, as a general guideline, having at least 50% equity is advisable, as you’ll need to use the loan proceeds to pay off any existing mortgage. The more equity you have, the more loan proceeds you’ll be eligible for.

Underwriting standards for HECM loans are unique compared to traditional mortgages. All applicants undergo a financial assessment to determine their financial capacity and willingness to meet loan obligations, such as paying taxes and insurance.

It’s important to note that qualification requirements may vary slightly between lenders. Factors such as your age, financial situation, current interest rates, and home value will all be considered. The good news is that you don’t need to fully own your home to qualify for a reverse mortgage.

The amount of cash you can receive depends on several factors: the youngest borrower’s age, current interest rate projections, the specific loan option chosen, and the appraised value of your home. Generally, older borrowers with higher-value homes will be eligible for more funds compared to younger borrowers with similar homes and interest rates. There are also limits on the amount of cash you can access in the first year. For more details on these distribution limits, visit our reverse mortgage loan FAQs page.

Key Features of Reverse Mortgage Loans:

Deciding whether a reverse mortgage loan is right for you can be challenging, but we’re here to help clear up any confusion and provide you with all the information you need to make the right decision.

Some key features of reverse mortgage loans include:

No monthly mortgage payments are required, although you still need to pay property taxes and insurance and maintain the property.

Various options are available to convert your home equity to support your financial goals, such as receiving monthly payments, a lump sum, or growing a line of credit over time.

Proceeds from a reverse mortgage loan are typically tax-free, but it’s advisable to consult your tax advisor for personalized advice.

Borrower protection measures are in place to reduce the risk of foreclosure. For instance, guidelines limit the amount of equity you can access in the first year of the loan. Additionally, borrowers must demonstrate their ability to pay property taxes and insurance and maintain the home while holding the loan. Moreover, if a non-borrowing spouse under the age of 62 loses their borrowing spouse or if their spouse permanently leaves the home, they can remain in the home as long as they adhere to the loan terms.

If you opt to access your equity through a line of credit, interest accrues only on funds that are used. Unused funds increase over time at the same rate as your loan, allowing you to grow the cash available for future needs in retirement.

FHA HECM loans are non-recourse loans, meaning your heirs are not liable for the debt if your home sells for less than the loan balance. Only funds from the home’s sale can be used to repay the loan.

You’re not required to pay off your existing home mortgage balance at the time of application. However, the reverse mortgage loan proceeds you receive must be used to pay off any existing mortgage or liens. You’ll continue to hold title to your home, subject to the mortgage securing the reverse mortgage loan.

Eligibility for Reverse Mortgage Loans:

Homes eligible for a reverse mortgage loan include single-family homes, detached homes, townhouses, and owner-occupied two-to-four unit properties. Condominiums must be FHA-approved for HECM loans, and some manufactured homes are also eligible. Contact your Reverse Mortgage Loan Originator for more details on manufactured home eligibility.

Repayment if You Outlive the Loan:

If you outlive the loan, you won’t have to repay the lender with a HECM loan. As long as one of the borrowers on the loan note (or the original non-borrowing spouse) lives in the home, continues to pay taxes and insurance, maintains the home, and complies with loan terms, repayment isn’t necessary. Once the last surviving borrower (and any non-borrowing spouse) passes away, the home is sold, or the loan obligations aren’t met, the loan must be repaid.

Effect on Your Estate and Heirs:

With a HECM, if the last surviving borrower dies, sells the home, or no longer resides there as the primary residence, you or your estate are responsible for repaying the money received from the reverse mortgage loan, plus interest and other fees. Any remaining equity belongs to you or your heirs. A “non-recourse” clause ensures that you or your estate aren’t liable for more than the value of your home when the loan is repaid. If the ending loan balance exceeds the home’s value, the estate (heirs) can sign a deed in lieu of foreclosure releasing the property or pay 95% of the home’s appraised value, less customary closing costs and real estate commissions.

Estate Planning Service for Reverse Mortgage Loans:

HUD advises against using any service that charges a fee (except required HECM counseling) or any service that requests a lender referral fee to obtain a reverse mortgage loan. HUD provides this information free of charge and can direct you to HUD-approved housing agencies that offer approved reverse mortgage loan counseling or additional services that are free or have a minimal cost.

There’s typically a reverse mortgage loan (HECM) counseling fee ranging from $125 to $150. Some counseling agencies may waive the fee for qualified applicants. You can find a HUD-approved housing counseling agency near you by calling 1-800-569-4287 toll-free.

Options for Receiving Loan Proceeds:

Payments from adjustable interest rate reverse mortgage loans can be received in one of five ways:

Tenure: Equal monthly payments
Term: Equal monthly payments for a fixed period decided by the borrower
Line of Credit: Payments made in installments or at various times and in amounts dictated by the borrower(s)
Modified Tenure: Monthly payments with a line of credit
Modified Term: Monthly payments for a fixed period with a line of credit²