Reverse Mortgage Loans
Turn Home Equity Into Greater Financial Flexibility
A reverse mortgage loan can give eligible homeowners age 62 and older an opportunity to access a portion of their home equity without selling their home. Instead of making traditional monthly mortgage payments, qualified borrowers may receive loan proceeds based on the value of their home, their age, and the requirements of the selected reverse mortgage program.
The homeowner generally continues to own and live in the property as long as the requirements of the loan are met. Borrowers remain responsible for property taxes, homeowners insurance, maintenance, and other obligations associated with the home.
How Does A Reverse Mortgage Work?
A reverse mortgage works differently from a traditional home loan. Instead of making monthly principal and interest payments to reduce the mortgage balance, an eligible homeowner may receive proceeds from the equity in the home.
The available amount may depend on:
- The age of the youngest borrower
- The home’s value
- The existing mortgage balance
- Current interest rates
- The selected reverse mortgage program
- Applicable lending and program requirements
The loan balance generally increases over time as interest and applicable charges are added. The reverse mortgage typically becomes due when the last surviving borrower permanently leaves the home or another event specified by the loan documents occurs.
What Are The Basic Requirements?
While requirements vary by program, reverse mortgage borrowers generally need to:
- Be at least 62 years old for an FHA-insured HECM
- Own the home or have sufficient equity to qualify
- Use the property as their principal residence
- Meet applicable financial assessment requirements
- Complete required counseling for applicable HECM transactions
- Continue paying property taxes and homeowners insurance
- Maintain the property according to program requirements
Additional eligibility requirements may apply depending on the selected reverse mortgage program and property type.
Reverse Mortgage Loan Options
HECM Reverse Mortgage
The Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage program available to eligible homeowners. It may allow borrowers to access a portion of their home equity while continuing to live in the property.
HECM loans are subject to FHA requirements, loan limits, counseling requirements, and other program guidelines.
HECM For Purchase
A HECM for Purchase may allow an eligible homeowner to purchase a new principal residence using reverse mortgage financing. This program combines a home purchase with reverse mortgage financing and has specific requirements regarding the property, borrower contribution, and transaction.
Proprietary Reverse Mortgage
A proprietary reverse mortgage is a private reverse mortgage product that is not insured by the FHA. Depending on the program and borrower qualifications, it may provide an alternative for homeowners whose financing needs differ from standard HECM guidelines.
Availability, loan amounts, property requirements, and other terms vary by lender and program.
How Can Reverse Mortgage Funds Be Received?
Depending on the selected reverse mortgage program, proceeds may be available through different payment options.
Potential structures may include:
- A lump-sum payment
- Monthly payments
- A line of credit
- A combination of payment options
The amount and availability of proceeds depend on the specific loan program and the borrower’s circumstances.
What Can Reverse Mortgage Funds Be Used For?
Reverse mortgage proceeds can generally provide homeowners with greater flexibility in managing their finances. Depending on their individual circumstances, borrowers may use available funds for purposes such as:
- Paying off an existing mortgage
- Covering home improvements or repairs
- Managing retirement expenses
- Paying medical or other personal expenses
- Supplementing available financial resources
- Creating a reserve for future needs
Borrowers should carefully consider how accessing home equity may affect their long-term financial plans.
Homeowner Responsibilities
A reverse mortgage does not remove the homeowner’s responsibility for maintaining the property and meeting required obligations.
The borrower generally must:
- Continue occupying the home as required by the loan
- Pay property taxes and homeowners insurance
- Maintain the property in accordance with program requirements
- Keep the property in suitable condition
- Follow the terms of the reverse mortgage agreement
If these obligations are not met, the loan may become due according to its terms.
Reverse Mortgage Costs
Like other mortgage transactions, reverse mortgage loans may involve various costs and fees. Depending on the program, these may include:
- Origination charges
- Mortgage insurance premiums for applicable HECM loans
- Appraisal fees
- Title and settlement costs
- Recording fees
- Counseling fees, when applicable
- Other lender or third-party charges
Some eligible costs may be financed as part of the reverse mortgage rather than paid entirely at closing.
Understanding Repayment
A reverse mortgage does not mean the home is transferred to the lender. The homeowner generally retains ownership while meeting the loan requirements.
The loan balance becomes due when a triggering event occurs, such as the last surviving borrower permanently moving from the home or passing away. At that time, the borrower or eligible heirs may have options based on the applicable program and loan terms.
The repayment amount can include the amount borrowed, accrued interest, and applicable fees or charges.
Common Questions About Reverse Mortgage Loans
Can I Keep Living In My Home?
Yes. An eligible borrower can generally continue living in the home as their principal residence while meeting the requirements of the reverse mortgage.
Will I Still Own My Home?
Yes. A reverse mortgage generally allows the homeowner to retain ownership. However, the loan is secured by the property, and the borrower must continue meeting the obligations outlined in the loan documents.
Do Reverse Mortgage Loans Require Monthly Mortgage Payments?
Generally, borrowers do not make monthly principal and interest payments on a reverse mortgage. However, they remain responsible for property taxes, homeowners insurance, maintenance, and other required expenses.
Does A Reverse Mortgage Affect My Existing Mortgage?
If there is an existing mortgage on the home, it generally must be satisfied as part of the reverse mortgage transaction. The reverse mortgage proceeds may be used toward paying off the existing mortgage, subject to program requirements.
Can My Heirs Keep The Home?
In many situations, eligible heirs may have the opportunity to retain the property by satisfying the reverse mortgage obligation, subject to the specific loan terms and applicable program requirements.
Get More Information About Reverse Mortgage Loans
Choosing a reverse mortgage involves important considerations about your home equity, finances, and long-term plans. Michael S. Wayland, Jr., Senior Loan Officer with C2 Financial Corporation, can help you understand the available reverse mortgage options and the requirements that may apply to your situation.