What’s a reverse mortgage?
A Home Equity Conversion Mortgage, (HECM), also known as a reverse mortgage, is insured by the Federal Housing Administration (FHA)2, allows homeowners 62 and older to access a portion of their home equity without having to make monthly mortgage payments.3
Are you required to make monthly mortgage payments?
There are no monthly mortgage payments3. If the borrower still has a mortgage on their home, the loan must be paid off using the proceeds from the HECM loan. If there isn’t a current mortgage, it increases the amount of money borrowers may be eligible to receive.
Are there any loan requirements?
Borrowers must continue to reside in the home as their primary residence, continue to pay the required property taxes, homeowner’s insurance and maintain the home according to FHA requirements.
What factors determine much money you can get?
The amount of funds borrowers can receive is determined by the following:
- Age of the youngest borrower (or non-borrowing spouse)4,
- The lesser of the appraised value of your home, sale price, or the FHA national lending limit of $970,800 for 2022,
- Current interest rates,
- The remaining balance of the existing mortgage (if applicable) and any other mandatory obligations.5
How do you get the funds?
There are a few disbursement options available. One option is in a lump sum which is only available with a fixed-rate loan.
However, if you choose to get an adjustable-rate HECM loan, you can select from the following:
- Equal monthly payments (Tenure),
- Equal monthly payments for a fixed period of months (Term),
- Draw at any time and in any amount of your choosing from the preset amount (Line of Credit),
- Combination of a line of credit plus scheduled monthly payments (Modified Tenure),
- Or a combination of a line of credit plus monthly payments for a fixed period of months (Modified Term).
What if you have a high-valued home?
A jumbo reverse mortgage, also known as a proprietary reverse mortgage, is designed to help owners with higher-value homes and is not insured by the FHA. A traditional HECM limit borrowers to a maximum claim amount of $970,800 whereas a jumbo reverse mortgage allows borrowers to access up to $4,000,000 (depending on the lender).
If you are interested in a reverse mortgage loan, call 800-976-6211 to speak with a licensed reverse mortgage advisor.
2 As required by the Federal Housing Administration (FHA), you will be charged an up-front 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.
3 Your current mortgage, if any, must be paid off using the proceeds from your HECM loan. You must still 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 A spouse must meet the following requirements to be considered eligible: 1) Be the spouse of the reverse mortgage borrower at the time of loan closing and remain the spouse of the borrower for the duration of the borrower’s lifetime. 2) Be properly disclosed to the lender at origination and specifically named as a Non-Borrowing Spouse in the loan documents. 3) Occupy, and continue to occupy, the property securing the reverse mortgage as the principal residence.
5 Mandatory obligations are those fees and charges, as defined by 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: the loan origination fee; counseling fee; up-front 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.