Reverse Mortgage: Borrower Responsibilities

September 15, 2021

Calculate Your Eligibility

When deciding if a reverse mortgage is right for you, it is important to know that there are certain requirements a borrower is responsible for during the life of the loan.  By educating yourself on these requirements, you can ensure that you keep your loan in good standing throughout its duration.  It is important to know the requirements because if these obligations are not met, the borrower risks possible foreclosure on the loan.

  1. The Home is the Main Residence

One condition of a reverse mortgage loan is that the property must be the borrower’s primary residence which means it needs to be occupied for the better part of the calendar year.  Many seniors who have a reverse mortgage lead an active lifestyle and may view this as not being allowed to leave the home for any duration.  However, this is not the case.

If the homeowner has an opportunity to take an extended trip, they should reach out to their loan servicer to let them know of the prolonged absence from the home.

  1. Maintaining the Home

When obtaining a reverse mortgage loan, borrowers are required to make any necessary repairs before the loan closing.  As a condition of the loan, borrowers need to continue to maintain the home for the life of the loan to meet the Federal Housing Authority (FHA) property standards.

The FHA’s property standards protect the borrower, so they will not be burdened with pricey home repair bills and maintenance from the start. Furthermore, with a sound place to live, the borrower may have more of an incentive to keep the home in good condition.

  1. Charges Related to the Property

There are related property charges that the borrower needs to keep up with for the loan to be in good standing.  These ongoing charges can include property taxes, homeowners insurance, and in some cases homeowners association (HOA) fees. In addition to these typical fees, some borrowers may have condo dues, ground rents or land leases to pay, and flood insurance.  Payment for these charges needs to be kept current as a requirement of the loan.

Lenders will evaluate whether or not a borrower will be able to pay future property taxes and homeowners insurance and, in some instances, require that loan proceeds be set aside for future payments.

  1. Fixed vs Adjustable Rate Flexibility

With a reverse mortgage loan, borrowers have flexibility in how they receive their funds with different rate and disbursement options.  These options should be evaluated, and selection should be made based on which benefits the borrower the most.

With a fixed-rate loan, proceeds can be received in a lump sum. With an adjustable-rate loan, you can select from the following options to receive your loan funds:

  • Tenure – provides equal monthly payments.
  • Term – provides equal monthly payments for a fixed period of months selected by the borrower.
  • Line of Credit –can be drawn at any time and in any amount of your choosing until the line of credit is exhausted.
  • Modified Tenure – is a combination of line of credit plus scheduled monthly payments.
  • Modified Term – is a combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

If you are 62 years and older and interested in speaking with a licensed loan advisor about a reverse mortgage loan, call 1-800-976-6211.