Enjoy life on your own terms using the equity in your home

Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. Co-ops do not qualify.

You must own a home, occupy that home, be at least 62, and have sufficient equity in your home. There are no medical requirements.

Lenders must conduct a financial assessment of every reverse mortgage borrower to ensure they have the financial capacity to continue paying mandatory obligations, such as property taxes and homeowner's insurance, as stipulated in the Loan Agreement.

If a lender determines that a borrower may not be able to keep up with property taxes and homeowners insurance payments, they will be authorized to set aside a certain amount of funds from the loan to pay future charges.

You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.

For example, let's say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $25,000 leftover to use as you wish.

A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid or Supplemental Security Income (SSI), any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain count as an asset and could impact eligibility. For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local Area Agency on Aging or a Medicaid expert.

Because of the upfront costs associated with a reverse mortgage, if you intend to leave your home within two to three years, there may be other less expensive options to consider, such as home equity loans, no-interest loans, or grants that may be offered by your county government or a local non-profit to repair your home. If you are having challenges paying your property taxes, a tax deferral program might be right for you. Also, if you want to leave your home to your children, then you should consider other options, because in many cases the home is sold to pay back a reverse mortgage.

Line of Credit

Most reverse mortgage borrowers establish a standby line of credit that they access only when funds are needed. Borrowers can access funds by submitting a written request to the company servicing the loan. An important feature of the line of credit is that the unused portion grows over time. The borrower is not earning interest, like with a checking account. Rather, the growth feature takes into consideration that you are one year older and that your home has appreciated in value.

Term Payment

This option provides borrowers with fixed monthly payments for a specified amount of time. If, for example, the borrower is 65 and wishes to defer going on Social Security until age 70 (so that they can receive the maximum payout benefit), this person can establish term payments for five years. The amount received each month will not change, even if the home decreases in value.

Tenure Payment

This option provides borrowers with fixed monthly payments for as long as the person lives in the home as a primary residence. Even if the loan balance exceeds the value of the home, the borrower will still receive the same monthly payment. The payments only stop when the borrower passes away or permanently leaves the home.

Modified Term/Line of Credit

Under this option, the borrower establishes a line of credit and receives fixed monthly payments for a specified amount of time. 

Modified Tenure/Line of Credit

Under this option, the borrower establishes a line of credit and receives fixed monthly payments for as long as they live in the home.

Single Disbursement Lump Sum

Under this option, all of the available loan proceeds are accessed at closing. Generally, this occurs when the borrower uses the HECM for Purchase program or to pay off a large existing mortgage on the property.

The amount of funds you are eligible to receive depends on your age (or the age of the youngest spouse when there is a couple), appraised home value, interest rates, and in the case of the government program, the FHA lending limit, which is currently $822,375. If your home is worth more, then the amount of funds you may be eligible for will be based on the $822,375 loan limit. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.

During the first 12 months after closing, a borrower cannot access more than 60 percent of the available loan proceeds. In month thirteen, a borrower can access as much or as little of the remaining funds as they wish.

There are exceptions to the 60 percent rule. If you have an existing mortgage, you may pay it off and take an additional 10 percent of the available funds, even if the total amount used exceeds 60 percent.

The proceeds from a reverse mortgage can be used for anything, whether it is to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or installing a ramp), pay for health care, pay off existing debts, cover property taxes, or prevent foreclosure.

With a reverse mortgage, you are charged interest only on the proceeds that you receive. Both fixed and variable interest rates are available. Rates are tied to an index, such as the 1-Yr. Treasury Bill or the London Interbank Offered Rate (LIBOR), plus a margin that typically adds an additional one to three percentage points onto the rate you're charged. Interest is not paid out of your available loan proceeds, but instead compounds over the life of the loan until repayment occurs

Regulation Z of the federal Truth In Lending Act provides you (the borrower) with a right of rescission, or right to cancel your loan, for three business days after your loan closing. Lenders are prohibited from charging interest on the funds which are held available for you during the three-day rescission period. Interest must begin to accrue on the day after the disbursement is made. According to Regulation Z requirements, you must be provided with a copy of the Notice of the Right of Rescission at your closing. This notice informs you of your right to rescind the contract within three (3) days of loan closing. The notice must be signed and dated by you to indicate the date you received the notice. If you decide to rescind your contract, you must notify your lender within three (3) days of your loan closing, according to the instructions provided on your Notice of the Right of Rescission.

For example, if you signed your Note on Thursday, March 13, 2018, the rescission period would expire on Monday, March 17, 2018, and the disbursement of funds would take place on Tuesday, March 18, 2018. The interest on the funds disbursed to you would begin to accrue on Wednesday, March 19, 2018.

What is the Service Fee Set Aside?

A: The service fee set aside is the dollar amount deducted from your Original Principal Limit and serves to ensure the future payment of your monthly servicing fee. The amount of the service fee set aside is NOT part of your outstanding balance and is NOT accruing interest. As the service fee set aside is not part of the loan balance, the funds remaining in the service fee set aside at the time of loan repayment are not subject to refund.

Q: Why am I charged a servicing fee?

A: The monthly servicing fee covers the costs associated with administering your reverse mortgage loan. This administration includes, among other tasks, providing customer service, maintaining accurate records of your outstanding loan balance (including the interest and mortgage insurance premiums, etc) at all times, tracking your property taxes and your hazard insurance, certifying your occupancy status, issuing your statements of account, issuing and collecting payments, collecting on the loan when it becomes due, and discharging the mortgage.

Q: I elected to receive monthly payments, when will those monthly payments commence?

A: Your first monthly payments are to be sent to you the first business day of the month following your loan funding date. For example, if your loan closed at the end of May and your loan funded in June, then your first monthly payment will be issued the first business day of July. If your loan closed in June, and your loan funded in June, then your first monthly payment will be the first business day of July.

Q: Can I change the type of payment plan I elected at closing?

A: If you have a Home Equity Conversion Mortgage (HECM), and your loan documents allow for a payment plan change, then yes you can change your payment plan. This means that you can change from monthly payments to a Line of Credit, or vice versa. There is usually a fee associated with changing your payment plan. National Reverse Mortgage Lenders Association strongly advises that you discuss the payment plan change options and any possible fee for changing your payment plan with your reverse mortgage servicer.

Q: What if my loan servicer does not send my requested funds in a timely manner?

A: Your loan servicer is to send your requested Line of Credit funds within five (5) business days of receiving your request for funds. If you have scheduled monthly payments, then these funds are to be disbursed by the first business day of each month. If your servicer does not disburse your funds within these timeframes, FHA can fine your loan servicer and make them pay you an extra 10% of the payment that is due to you, plus interest on that sum for each additional day the disbursement is delayed. This fine shall not exceed $500 for each instance of late disbursement. This fine may not be added to your loan balance.

Q: Do I have to pay my property taxes? 

A: Yes, it is your responsibility to ensure that your property taxes are paid in a timely manner. Failure to keep your property taxes current is considered a DEFAULT in the terms of your Loan Agreement and may be grounds for calling your loan due and payable.

Q: What is a “Tax Set Aside”?

A: You may choose to have your reverse mortgage servicer pay your property taxes on your behalf. You may work closely with your servicer so as to determine how much your property taxes are each year and for how many years you want your servicer to pay your taxes on your behalf. The amount that is required to meet this tax obligation will be “set aside” from your available loan proceeds and will be used for the payment of your taxes. These funds do not become part of your loan balance until such time as the funds are actually disbursed.

Q: Can I participate in a property tax deferral program?

A: You may only participate in a property tax deferral program if the lien created by your deferral program is subordinate to your reverse mortgage loan.

Q: May I participate in a tax exemption program?

A: Yes, tax exemption programs are permitted under the reverse mortgage program.