What is a Reverse Mortgage Loan?
Many ask, “is a reverse mortgage loan a good idea?” While there can be speculation, our hope is that you become fully informed of this unique mortgage loan and make the appropriate decision for you and your family given your unique situation.
It can be scary making a major decision about one of your biggest investments, the place that means the most to you. Deciding whether a reverse mortgage loan is right for you often requires education and expert advice. We hope the following information is beneficial as you explore whether a reverse mortgage loan is right for you.
A reverse mortgage loan is a unique loan that allows homeowner(s) 55 years of age and older to draw on the value of their home, which is paid to the homeowner(s) in a variety of payout options or used as a line of credit. One of the unique features of a reverse mortgage loan is that it does not require repayment until the homeowner(s) no longer reside in the residence, the last surviving borrower passes away, or does not comply with the loan obligations. An example of reverse mortgages or HECM guidelines / obligations are paying property taxes and insurance and maintaining the property to FHA guidelines (if the reverse mortgage loan is FHA’s HECM loan).
Reverse Mortgage Loans
Types of Reverse Mortgage Loan Solutions
There are different types of reverse mortgage loan solutions. The two most popular are the HECM loan (Home Equity Conversion Mortgage, insured by the FHA) and jumbo or proprietary reverse mortgage loan¹ for high value homes. Prior to applying for a reverse mortgage loan, it is required that you are made aware of the terms and conditions of the loan through sources provided by HUD or your lender. If you are applying for a HECM loan, you can contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency. You may also contact our office and we will provide you with the list of HUD-approved reverse mortgage loan counseling agencies.
We are reverse mortgage loan specialists and are here to assist you as you explore your options and whether a reverse mortgage loan solution is right for you. Our goal is that as you learn more about the reverse mortgage loan you have all the information you need to make the best decision for you and your family. We aim to provide world class service from start to finish.
Get a FREE Rate Quote Now!
How to Qualify
Qualifications for Reverse Mortgage Loans
Keep in mind that each lender may have different qualification requirements based on multiple factors; like your financial situation, age, interest rates, home value and other factors. Also, you do not need to pay off your home to qualify for a reverse mortgage loan.
The cash you can potentially receive is based on the age of the youngest borrower, the current expected interest rate, the mortgage option selected, and the appraised value of the home. For instance, an older individual with a higher value home typically will be eligible for more than a younger person with the same home value at the same expected interest rate. How much money you can take in the first year is limited. For more information on distribution limits visit our reverse mortgage loan FAQs page.
Contact us today for your no obligation reverse mortgage loan evaluation.
The Key Features of Reverse Mortgage Loans
At the time of application, your home mortgage balance does not have to be paid off to qualify. However, the reverse mortgage loan proceeds you receive must be used to pay off the existing mortgage or liens (if there is a mortgage balance owing). You will continue to hold title to your home subject to the mortgage securing the reverse mortgage loan.
Reverse Mortgage FAQs
Frequently Asked Questions
Homes that are eligible for a reverse mortgage loan include single-family homes, detached homes, townhouses, and two-to-four unit properties that are owner-occupied. Condominiums must be FHA-approved for the HECM loan and some manufactured homes are also eligible. Contact your Reverse Mortgage Loan Originator for more details on manufactured home eligibility.
If you outlive the loan, you will not have to repay the lender if you have a HECM loan. As long as one of the borrowers on the loan note (or original non-borrowing spouse) lives in the home, continues to pay the taxes and insurance and maintains the home in good condition, you will not need to repay the loan. Once the last surviving borrower passes away (and any non-borrowing spouse), the home is sold or the obligations of the loan are not met, the loan must be repaid.
Adjustable interest rate reverse mortgage loan payments can be received in one of five ways:
- Tenure: equal monthly payments
- Term: equal monthly payments for a fixed period of months as 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 of months with a line of credit²
What Are The Differences Between A Home Equity Line of Credit And A Reverse Mortgage Loan?
Reverse mortgage loans have become more popular because they allow the borrower to receive loan proceeds that do not require immediate repayment as long as you remain in your home as your primary residence, do not sell your home, at least one borrower lives in the home, you meet the basic income and credit standards, and follow loan guidelines.
On the other hand, obtaining a home equity loan (or home equity line of credit or second mortgage) requires that you have sufficient income to cover the debt- plus, you must continue to make monthly principal and interest mortgage payments.
With a reverse mortgage loan, you must meet basic income and credit guidelines but you do not make monthly principal and interest payments. Keep in mind you must continue to pay all property related fees, taxes and homeowner’s insurance and maintain the property in good condition.
Reverse Mortgage Loans and Home Equity Conversion Mortgages
Necessity is the mother of invention and the first reverse mortgage loan is no exception. Today, many use the terms reverse mortgage loan and HECM or Home Equity Conversion Mortgage interchangeably. But are they the same? Not necessarily.
The first reverse mortgage loan was originated in 1961 by Deering Savings & Loan. Nelson Haynes who worked for the lender learned his former high school football coach had passed away and his widow was struggling to find a way to keep the home. The widow, Nellie Young, took the very first reverse mortgage loan and became part of mortgage history in the process.
In the ensuing years, interest grew in the concept of a ‘reverse mortgage’ loan which allowed the homeowner to defer payments until a later time -usually upon their death. Private lenders stepped into this niche market, however some of these loans relied upon ‘equity-sharing’ schemes in addition to accrued interest on the money borrowed.
Recognizing the increasing need for older homeowners to secure their retirement with home equity Congress began exploring the concept of reverse mortgage loans. In 1969 the first hearing was held in the Senate Committee on Aging to discuss the government’s possible role in such a program.
It wasn’t until nearly two decades later that the Home Equity Conversion Mortgage was formalized by Congress in 1987 as part of an insurance bill. It began as a pilot program for the nation’s first federally-insured reverse mortgage loan then later became a permanent fixture in mortgage lending. In formalizing a government-insured and supervised loan numerous consumer protections were included.
Today, many refer to the Home Equity Conversion Mortgage or HECM as a reverse mortgage loan – a name that stuck, since payments are ‘reversed’ with the borrower not being required to make payments but instead the lender pays the homeowner.³ However, not all reverse mortgage loans are created equal. HECMs are federally-insured and have unique eligibility requirements and guarantees. Private reverse mortgage loans¹ offer access to one’s home equity with no required monthly payments as well, albeit with different terms and conditions.
The good news is that while only the HECM is insured by the Federal Housing Administration (FHA) and supervised by the Department of Housing and Urban Development (HUD), private reverse mortgage loans are closely monitored by regulators. It is recommended that homeowners thoroughly research their options on which loan may best suit their needs. Costs, features, eligibility rules, insurance, and interest rates should be considered.
Whether it’s a HECM or a reverse mortgage loan, both reverse the typical mortgage and provide eligible homeowners a flexible means to tap into their home’s value.
History of Reverse Mortgage Loans
¹For these loan programs we are a Mortgage Broker only, not a mortgage lender or mortgage correspondent lender. We will arrange loans with third-party providers but do not make loans for these programs. We will not make mortgage loan commitments or fund mortgage loans under these programs.
²HECM fixed interest rate mortgages are limited to the Single Disbursement Lump Sum payment option, which is one full draw at loan closing and no future draws. Adjustable interest rate mortgages provide for five, flexible payment options, and allows for future draws. Initial distribution caps will apply.
³There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower is still responsible for paying property taxes, homeowner’s insurance and maintaining the property to HUD standards. Failure to do so could make the loan due and payable. Credit is subject to age, income standards, credit history, and property qualifications. Program rates, fees, terms, and conditions are not available in all states and subject to change.
This advertisement does not constitute financial advice. Please consult a financial advisor regarding your specific situation. Borrowers should seek professional tax advice regarding reverse mortgage loan proceeds.
Get Pre-Qualified Today
Click here for our “5 minute assessment to see if you qualify for a reverse mortgage today.