As of January 2019, more than 1.1 million seniors have taken out a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage.1 In addition, according to a university study, 83% of seniors who took out a reverse mortgage said they were either satisfied or very satisfied with their decision.2 If you or someone you know is thinking of getting a reverse mortgage, it’s important to understand all of the facts. Here are some key reverse mortgage facts to help you decide if it could be the right fit:
Fact #1: A reverse mortgage is a loan
A reverse mortgage is a loan specifically for borrowers who are at least 62 years old and have sufficient equity in their home. It allows senior homeowners access to a portion of their home’s equity while eliminating their monthly mortgage payments.3 A HECM is a type of reverse mortgage that is insured by the Federal Housing Administration (FHA).4 There are also reverse mortgages for higher home values (above the FHA-insured limit of $726,525). These are often referred to as proprietary or jumbo reverse mortgage loans.
Fact #2: You will still own your home3
You retain the title and ownership of your home during the life of the loan. In addition, you can even sell your home at any time (the loan will just become due and payable). Keep in mind that the lender will add a lien onto the title to guarantee payment, as with a traditional mortgage.
Fact #3: There is a financial assessment
All HECM applicants, regardless of the lender you choose, will undergo a financial assessment. The U.S. Department of Housing and Urban Development (HUD) requires a financial assessment to evaluate the borrowers’ willingness and capacity to meet their financial obligations and mortgage requirements.5 During this process, the lender will verify your income and credit history (although there isn’t a minimum credit score requirement at this time). In some cases, a portion of the loan proceeds may be put into a Life Expectancy Set Aside, or LESA, to pay for property taxes and homeowners insurance.
Fact #4: You have various payout options
With a fixed-rate loan, you can receive the cash in a lump sum. With an adjustable-rate loan, you can select from the following options:
Tenure: Equal monthly payments.
Term: Equal monthly payments for a fixed period of months selected by the borrower.
Line of Credit: Draw at any time and in any amount of your choosing until the line of credit is
Modified Tenure: Combination of line of credit plus scheduled monthly payments.
Modified Term: Combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
Fact #5: Reverse mortgages can be used to purchase a new home
Although not as common as the HECM Refinance loan, the HECM for Purchase is available to help homeowners buy their next home. This loan enables borrowers to use the equity from the sale of a previous residence to buy their next primary home in one transaction, with one initial investment (commonly known as the down payment).
If you still have questions about the reverse mortgage product, call 1-800-976-6211 to speak with a licensed loan officer who can help provide you with the facts you need. You can also receive a free, no-obligation loan assessment to see if a reverse mortgage could be the right financial solution for you or someone you know.
1 National Reverse Mortgage Lenders Association (NRMLA) Online: https://www.nrmlaonline.org/2019/02/06/annual-hecm-endorsement-chart
2 National Reverse Mortgage Lenders Association (NRMLA) Online: “Borrower Outcomes: Generally current on taxes, high overall well-being, and satisfied with decision”, https://www.nrmlaonline.org/2016/03/09/borrower-outcomes-
3 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
4 As required by the Federal Housing Administration (FHA), you will be charged an initial mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
5 U.S. Department of Housing and Urban Development, Mortgagee Letter 2013-27, https://www.hud.gov/sites/documents/ML13-27.PDF