What is a reverse mortgage loan?
Reverse mortgage loans are a way for older homeowners to convert their home's value into tax-free cash, without having to sell or move. Insured by the U.S. government, the Department of Housing and Urban Development (HUD) allows Homeowners who are 62 or older to borrow against the equity of their homes.
Here’s how it works:
- Qualifying homeowners can choose to receive tax-free loan payments from reverse mortgage lenders either on a monthly basis, in a lump sum, or as a line of credit
- No repayments are required while a borrower lives in the home and is compliant with all loan terms.
- Reverse mortgage lenders recover the loan amount, plus interest when the home is sold (because owners choose to move, or pass away)
- When the loan is paid in full, any equity associated with the property will be distributed to your heirs.
Keep in mind:
Reverse mortgage borrowers continue to own their homes. Because there are no monthly loan payments due, the amount owed grows over time. That means that the amount and the remaining equity in the home decreases.
Borrowers must continue to pay homeowner’s insurance and property taxes during the loan period. It is also the borrower’s responsibility to keep up with repairs. In fact, if a borrower fails to adhere to any of these obligations, it may become immediate cause for the loan to become due. In which case, it would become payable in full.
Do I qualify for a reverse mortgage loan?
You must be age 62 or older. And you must occupy the home as your primary residence – for the majority of the year. Borrowers must own the home outright or have a low enough balance on the existing mortgage that it can be paid off from the proceeds of the reverse mortgage.
Each borrower listed on the title must apply for the reverse mortgage loan, attend a HUD counseling session and sign the loan papers. The HUD counseling is either handled in person, or over the telephone.
Does my home qualify for a reverse mortgage loan?
First of all, your residence must meet HUD standards. The reverse mortgage must also be the only mortgage held against the residence. That means that if there is a current mortgage on the property, it must be able to be paid off with the proceeds of the reverse mortgage.
Examples of qualifying homes:
- Single Family One-Unit Residences
- 2-4 Unit Owner-Occupied Residences
Ask your lender if these residences qualify:
- Manufactured Homes
- Condominiums and
- Planned Unit
How is the loan amount determined?
The amount of the loan is based on:
- The age of the youngest borrower or eligible non-borrowing spouse
- Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price
- Current interest rates
What are my reverse mortgage loan options?
HECM — The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage that is insured by the Federal Housing Administration (FHA). Because this is a government insured product, loan counseling is required, by an approved HUD counselor.
HECM offers 4 draw options:
- Monthly payments
- Line of credit
- Lump sum
- Any combination of the above 3