Reverse Mortgage: How Does it Work?

Reverse Mortgage: How it Works
Learn how some seniors are tapping into their home equity in retirement.

Many seniors may find themselves struggling financially in retirement. A reverse mortgage loan may help in these situations.  Reverse mortgages work differently from traditional mortgages because they convert your home equity into a source of income that you can draw from rather than a loan that requires monthly payments to the lender or bank.  So how do reverse mortgages work?

There are specific criteria that need to be met to qualify for a reverse mortgage:

  • Age – The youngest borrower must be at least 62 years old
  • Equity – There must be enough equity in the home from a loan to value ratio.  Those who own their home outright may also be eligible.
  • Residency – The home must be the borrower’s primary residence
  • Debt – Borrower cannot be delinquent on any federal debt
  • Product Assessment- Borrower must attend a reverse mortgage counseling session and receive a certificate of completion1

Getting a reverse mortgage also requires that homeowners keep up with property maintenance, stay current on property taxes, continue paying homeowner’s insurance and any necessary Home Owner’s Associations payments (if applicable).2

Loan Proceeds
Age, interest rates, and the current market value of a home will determine the amount of money available, but homeowners have several options for receiving their money3:

  • Equal payments – A specific amount of money for a set number of months
  • Equal monthly payments – A set amount of money until the home is no longer the primary residence
  • Line of credit – A line of credit set-up to pull funds from as needed4
  • Lump Sum – Receive all funds at once5
  • Combination – Other than the lump sum option (where all funds are taken upfront), borrowers can also choose to do a combination of the other payments.

Interested in learning how you could benefit from a reverse mortgage? Call (800) 976-6211 to speak with a licensed reverse mortgage specialist for a same-day, free no obligation loan assessment.

Important Disclosures

1 The U.S. Department of Housing and Urban Development (HUD) provides a list of approved reverse mortgage counseling agencies for you to choose from. The purpose of this requirement is so you are aware of all of your options, and can evenly weigh the pros and cons of each.

2 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.

3 The funds available to you may be restricted for the first 12 months after loan closing. In addition, you may be required to set aside additional funds from the loan proceeds to pay for taxes and insurance.

4 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.5 The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements.  In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance. This disbursement option is only available for a fixed rate loan.