Reverse Mortgage Information
It can be difficult to find reverse mortgage information that’s complete, reliable, easy to understand, and balanced, without a lot of sales pitch. We created this site to fill that gap.
Information about reverse mortgages is in some ways more important than information about regular mortgages, because regular mortgages are more familiar to people, and the focus tends to be just on rates and pricing. Rates and pricing, while important in reverse mortgages as well, take a back seat to understanding how the reverse mortgage works, and deciding if it’s the right product for you. Rates with standard “forward” loans change every day, but they are much more stable with reverse mortgages. It’s possible that a rate quoted one day will still be in place weeks or even months later.
A reverse mortgage is also formally called a Home Equity Conversion Mortgage (HECM). Legislation authorizing it was signed by President Ronald Reagan in 1988, after years of lobbying by the National Council of the Aging, the VA, and other groups. As the name suggests, it was designed to convert equity in the home into usable cash, but without the monthly payments that would usually be required.
Seniors usually face a decline in income from their prime earning years, and often an increase in costs, like for medical expenses. The idea of the reverse mortgage was to allow seniors to remain in their homes longer, with a more satisfying lifestyle, by eliminating their current mortgage and/or giving them a portion of their equity in cash, with no monthly payments.
This product was designed for those who are at least age 62 and have either paid off their mortgage or have paid the balance down to a healthy degree. How much you qualify to receive depends on the interest rate and your age, but roughly speaking, if you’re 62 you can get about 62% of the value of the home, minus any mortgage to be paid off and the costs of the loan. The older you are the more of the home’s equity you can access.
The value of the home is maxed at $625,500, so it really doesn’t work for most high-end homes. For example, if your home is worth $2,000,000 and you only have a mortgage balance of $625,500, you have a lot of equity. However, for purposes of this loan, FHA will only see a value of $625,500, meaning you have no equity at all, and thus will not qualify for the loan.
Compared to the stringent qualification guidelines for most regular mortgages, qualifying for a reverse mortgage is fairly easy. If you are at least age 62, have enough equity in your primary residence, and have enough steady income to maintain the home and its property taxes and insurance with some cushion, you likely qualify. Even bad credit is not necessarily an obstacle to getting this loan.
You can receive the proceeds of a reverse mortgage in several ways. You can get a lump sum at a fixed rate, you can get a line of credit at an adjustable rate, you can get a monthly income (tenure) at an adjustable rate, or a combination of the last two. The lump sum with a fixed rate will get you the most money, and will be your likely choice if you have a sizable mortgage to pay off or if you are using the reverse mortgage to purchase a home.
The main feature of the reverse mortgage is that there are no monthly payments required as long as you remain in the home and meet other guidelines. Your principal balance increases over time, with accruing interest and accruing annual mortgage insurance premiums. The majority of HECMs end still with equity left in the home, and the borrower or their estate retains whatever is left after paying off the loan, just as with any other loan. Should the HECM end with the balance being more than the home is worth, the insurance (backed by the Federal Housing Administration) assures that the lender will get all that’s due to them, while also assuring the borrower that neither they nor their estate will ever be liable for more than the home is worth.
For more reverse mortgage information, you can explore this website more fully, and consult with trusted advisors. Whether you end up choosing a reverse mortgage or not, the goal should be to make an informed decision that’s right for you.