866 751.6105 Reverse Mortgage Loans

What is a Reverse Mortgage?

A reverse mortgage is a loan for senior homeowners that use a portion of the home’s equity as collateral. The loan generally does not have to be repaid until the last surviving homeowner permanently moves out of the property or passes away. At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage loan or sell the home to pay off the balance. All remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage loan.

Eligibility for a reverse mortgage loan

To be eligible for a Home Equity Conversion Mortgage (HECM) reverse mortgage loan, the Federal Housing Administration (FHA) requires all homeowners be at least age 62. The home must be owned free and clear or all existing liens would need to be satisfied.  If there is a mortgage balance, it can be paid off completely with the proceeds of the reverse mortgage loan at the closing.

Eligible home types

Many home types are eligible. Some condos and townhomes may also be eligible.

Difference between a reverse mortgage and a home equity loan

With traditional loans such as a home equity loan, a second mortgage, or a home equity line of credit (HELOC), the homeowner must still make monthly payments to repay the loans. However with a reverse mortgage loan, instead of  making monthly payments to the lender, the homeowner receives payouts from the reverse mortgage loan from the lender.

With a reverse mortgage loan the amount that may be borrowed is determined by an FHA formula that considers age, the current interest rate, and the appraised value of the home. Generally the higher the value of the home the higher the loan amount will be, up to the FHA’s maximum lending limits.The loan is typically not due as long as the homeowner lives in the home; however, the homeowner is still responsible for real estate taxes, insurance, and maintenance.

Outliving the reverse mortgage loan

A reverse mortgage loan cannot be outlived. As long as one of the homeowners lives in the home as their primary residence and maintains the home in accordance with FHA requirements (keeping taxes and insurance current), the loan does not become due.

Estate inheritance

In the event of death or in the event that the home ceases to be the primary residence for more than 12 months, the homeowner’s estate can choose to repay the reverse mortgage loan or put the home up for sale.

If the equity in the home is higher than the balance of the loan, the remaining equity belongs to the estate.

If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA. No other assets are affected by a reverse mortgage. For example, investments, second homes, cars, and other valuable possessions cannot be taken from the estate to pay off the reverse mortgage.

Loan limit

The amount that is available  depends on many factors, such as: age, current interest rate, appraised value of the home and FHA maximum lending limits. Use our reverse mortgage calculator to estimate how much could be drawn.

Distribution of money from a reverse mortgage loan

There are several ways to receive the proceeds from a reverse mortgage loan:

  • Lump sum – a lump sum of cash at closing
  • Tenure – equal monthly payments as long as the homeowner lives in the home
  • Term – equal monthly payments for a fixed number of years
  • Line of Credit – draw any amount at any time until the line of credit is exhausted
  • Any combination of those listed above.