Seniors without regular income in retirement may find themselves struggling with finances. The reverse mortgage for seniors is an option for those who own their home, have sufficient equity, and want access to additional funds.
What is a Reverse Mortgage Loan for Seniors?
Homeowners 62 years and older who want to tap into their home equity and convert it into cash can do so with a reverse mortgage home loan. Two of the common benefits why seniors choose a reverse mortgage is to eliminate their monthly mortgage payment and supplement their retirement income.1,2
How Do Seniors Use Reverse Mortgages?
Reverse mortgage proceeds can be used however the borrower chooses. Some of the main uses are to:
- Consolidate debt3
- Pay for everyday living expenses
- Make home improvements
- Afford medical, prescription costs
- Purchase a home to age-in-place
- Cover large or unexpected expenses
- Set aside proceeds for an emergency fund
How Does A Reverse Mortgage Work?4
Opposite of a traditional home loan where the homeowner pays the lender, a reverse mortgage pays the borrower. Keep in mind that similar to a traditional home loan, property taxes, homeowner’s insurance and other related costs will still need to be paid or the borrower may risk foreclosure.5
The amount of funds received in a reverse mortgage is calculated on a sliding scale. The older the homeowner, the more home equity is available to tap into. It is recommended by The Consumer Financial Protection Bureau (CFPB) to wait until older age to obtain a reverse mortgage, so funds are not depleted too early into retirement.
Home Equity Conversion Mortgage (HECM) Types
There are two types of reverse mortgages, also known as HECMs, that are insured by the Federal Housing Administration (FHA)6: adjustable rate and fixed rate loans.
- Fixed rate reverse mortgages are only available as a one-time, lump sum payment.7
- Adjustable rate reverse mortgages have five payment options:
- Tenure: Set monthly payments
- Term: Set monthly payments for a fixed period of time
- Line of Credit8: Set amount of funds in a line of credit. Proceeds can be withdrawn of any quantity whenever needed, until the homeowner has exhausted the funds
- Modified Tenure: Line of credit and/or set monthly payments
- Modified Term: Line of credit and/or set monthly payments for a fixed period of time
Seniors Eligible for a Reverse Mortgage
Homeowners must meet the following to apply:
- Must be 62 or older
- Must live in the home as the primary residence
- There are no delinquent federal debts
- Home must be owned outright or have considerable equity
- Borrower must attend a mandatory counseling session counselor approved by the Department of Housing and Urban Development
- The home must meet all FHA property standards and flood requirements
- The borrower must continue to pay all property taxes, homeowners insurance and other household maintenance fees
Does your home have enough equity to supplement your retirement? Call (800) 976-6211 to speak with a licensed reverse mortgage specialist to find out how much you may qualify for.
1 Generally, money received is not considered income and should be tax free, though you must continue to pay required property taxes. Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
2 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.
3 Your HECM loan will accrue interest that together with principal will have to be repaid when the loan becomes due.
4 The loan works by allowing you to borrow against the value of the home and defer mortgage payments until after the last remaining occupant has moved out or passed away.
5 Mandatory obligations are those fees and charges, as defined by the U.S. Department of Housing and Urban Development (HUD), incurred with the origination of the HECM loan that are paid at closing or during the first 12-month disbursement period. This includes but is not limited to: existing liens on the property; the loan origination fee; counseling fee; upfront MIP; third-party closing costs; customary fees and charges for warranties, inspections, surveys, engineer certifications; repair set-asides; set-aside for property taxes and insurance; and delinquent federal debt.
6 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.
7 the lump sum option is only available for a fixed rate loan
8 The “line of credit growth feature” -once you secure a traditional Home Equity Line of Credit, the total amount you can borrow is set at the time you sign the loan. But with a Reverse Mortgage Line of Credit, the unused portion of your credit line grows over time, independent of your home’s value. That means that the less you take upfront, the more you’ll be able to borrow later. As long as you meet your loan obligations, your Reverse Mortgage Line of Credit can not be reduced.