Frequently Asked Questions

Reverse mortgages have been around for over 20+ years and have evolved and “matured” into a financial instrument utilized in retirement strategy.  New consumer safeguards recently enacted have addressed issues of surviving spouse, neutral (mandatory) counseling and disbursement of funds to the betterment of the program.  Most Reverse Mortgage Experts believe this will improve the market going forward. If you are eligible for a reverse mortgage and would like to consider the options that may be available for you, then you need to ask as many questions as necessary.

Asked and Answered FAQ 

A Reverse Mortgage needs to make sense and it needs to work for YOU.  There are several options available and choices to make when you are serious about moving forward.  The “TABS” below provide (FAQ) frequently asked questions and answers to some of the common questions that are asked by consumers who inquiry about the program.

A reverse mortgage (HECM LOAN) is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage

The amount varies by borrower and depends on:

  1. Age of the youngest borrower or non-borrowing spouse
  2. Current interest rate
  3. Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price
  4. Initial Mortgage Insurance Premium

If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.

For adjustable interest rate mortgages, you can select one of the following payment plans:

  • TENURE – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • TERM – equal monthly payments for a fixed period of months selected.
  • LINE OF CREDIT – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
  • MODIFIED TENURE – combination of line of credit and scheduled monthly payments for as long as you remain in the home.
  • MODIFIED TERM – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower. For fixed
    interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.
  • SINGLE DISBURSEMENT LUMP SUM – a single lump sum disbursement at mortgage closing.

To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved  and manufactured homes that meet FHA requirements are also eligible.

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.

With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.

Changes In Reverse Mortgage Guidelines That Protect Seniors

Old Guidelines

  • No neutral consultation available
  • Large, lump sum payments allowed
  • Forced to move out in certain situations
  • Very Expensive

New Guidelines

  • 3rd Party counseling mandatory
  • Strict limits on initial advance
  • Younger spouse may remain in home
  • Fees significantly reduced

“It is a great shame for the financial planning profession that the conventional wisdom about reverse mortgages continues to remain so negative and to be based on so many misunderstandings about their potential uses.”

– Wade D. Pfau
Professor of Retirement income at the American College   Director of Retirement Research, McLean Asset Management