What is a Reverse Mortgage Loan?
A reverse mortgage loan is a unique loan that allows homeowner(s) 62 years of age and older to draw on the value of their home, which is paid to the homeowner(s) in a variety of payout options or used as a line of credit. One of the unique features of a reverse mortgage loan is that it does not require repayment until the homeowner(s) no longer reside in the residence, the last surviving borrower passes away, or does not comply with the loan obligations. An example of reverse mortgages or HECM guidelines / obligations are paying property taxes and insurance and maintaining the property to FHA guidelines (if the reverse mortgage loan is FHA's HECM loan).
Types of Reverse Mortgage Loans
There are different types of reverse mortgage loans. The two most popular are the HECM Loan Home Equity Conversion Mortgage, insured by the FHA) and jumbo or proprietary reverse mortgage loans¹ for high value homes.
We are reverse mortgage loan specialists and are here to assist you as you explore your options and whether a reverse mortgage loan is right for you. Our goal is that as you learn more about the reverse mortgage loan you have all the information you need to make the best decision for you and your family. We aim to provide world-class service from start to finish.
Qualifications for Reverse Mortgage Loans
To qualify for a reverse mortgage loan there are some basic requirements, such as:
Keep in mind that each lender may have different qualification requirements based on multiple factors; like your financial situation, age, interest rates, home value, and other factors. Also, you do not need to pay off your home to apply for a reverse mortgage loan.
The cash you can potentially receive is based on the age of the youngest borrower, the current expected interest rate, the mortgage option selected, and the appraised value of the home. For instance, an older individual with a higher value home typically will be eligible for more than a younger person with the same home value at the same expected interest rate. How much money you can take in the first year is limited.
The Key Features of Reverse Mortgage Loans
Deciding whether a reverse mortgage loan is right for you can be a daunting task, but we are here to hopefully alleviate some confusion and provide you with all the information you need to make the right decision for you and your family.
Some of the key features of the reverse mortgage loan are as follows:
At the time of application, your home mortgage balance does not have to be paid off to qualify. However, the reverse mortgage loan proceeds you receive must be used to pay off the existing mortgage or liens (if there is a mortgage balance owing). You will continue to hold title to your home subject to the mortgage securing the reverse mortgage loan.
Reverse Mortgage Loan Home Eligibility
Homes that are eligible for a reverse mortgage loan include single-family homes, detached homes, townhouses, and two-to-four unit properties that are owner-occupied. Condominiums must be FHA-approved for the HECM loan and some manufactured homes are also eligible. Contact your Reverse Mortgage Loan Originator for more details on manufactured home eligibility.
Will You Have To Repay The Lender if You Outlive The Loan?
If you outlive the loan, you will not have to repay the lender if you have a HECM loan. As long as one of the borrowers on the loan note (or original non-borrowing spouse) lives in the home, continues to pay the taxes and insurance and maintains the home in good condition and complies with the loan terms, you will not need to repay the loan. Once the last surviving borrower passes away (and any non-borrowing spouse), the home is sold or the obligations of the loan are not met, the loan must be repaid.
How Will This Loan Affect My Estate And How Much Will Be Left To My Heirs?
If a HECM, once the last surviving borrower dies, sells your home, or no longer resides there as the primary residence, you or your estate is responsible for the repayment of the money you received from the reverse mortgage loan, plus interest and other fees. Any remaining equity belongs to either you or your heirs. A “non-recourse” clause prevents either you or your estate from being responsible for more than the value of your home when the loan is repaid. If the ending loan balance exceeds the home's value, the estate (heirs) can sign a deed in lieu of foreclosure releasing the property or, pay 95% of the home's appraised value, less customary closing costs & real estate commissions.
Should I Use An Estate Planning Service To Find A Reverse Mortgage Loan?
HUD advises against using any service that charges a fee (except required HECM counseling) or any service that requests a lender referral fee to obtain a reverse mortgage loan. HUD provides this information free of charge and can direct you to HUD-approved housing agencies that offer approved reverse mortgage loan counseling or additional services that are free or have a minimal cost.
There is typically a reverse mortgage loan (HECM) counseling fee that ranges from $125 - $150. If the borrower cannot afford this fee, some counseling agencies will waive the fee for qualified applicants. You can find a HUD-approved housing counseling agency near you by calling 1-800-569-4287 toll free.
Options For Receiving Loan Proceeds
Adjustable interest rate reverse mortgage loan payments can be received in one of five ways:
What Are The Differences Between A Home Equity Line of Credit And A Reverse Mortgage Loan?
Reverse mortgage loans are unique because they allow the borrower to receive loan proceeds that do not require immediate repayment as long as you remain in your home as your primary residence, do not sell your home, at least one borrower lives in the home, you meet the basic income and credit standards, and follow loan guidelines.
On the other hand, obtaining a home equity loan (or home equity line of credit or second mortgage) requires that you have sufficient income to cover the debt- plus, you must continue to make monthly principal and interest mortgage payments.
With a reverse mortgage loan, you must meet basic income and credit guidelines but you do not make monthly principal and interest payments. Keep in mind you must continue to pay all property related fees, taxes and homeowner’s insurance and maintain the property in good condition.
Reverse Mortgage Loans and Home Equity Conversion Mortgages
Necessity is the mother of invention and the first reverse mortgage loan is no exception. Today, many use the terms reverse mortgage loan and HECM or Home Equity Conversion Mortgage interchangeably. But are they the same? Not necessarily.
The first reverse mortgage loan was originated in 1961 by Deering Savings & Loan. Nelson Haynes who worked for the lender learned his former high school football coach had passed away and his widow was struggling to find a way to keep the home. The widow, Nellie Young, took the very first reverse mortgage loan and became part of mortgage history in the process.
In the ensuing years, interest grew in the concept of a ‘reverse mortgage’ loan which allowed the homeowner to defer payments until a later time -usually upon their death. Private lenders stepped into this niche market, however some of these loans relied upon ‘equity-sharing’ schemes in addition to accrued interest on the money borrowed.
Recognizing the increasing need for older homeowners to secure their retirement with home equity Congress began exploring the concept of reverse mortgage loans. In 1969 the first hearing was held in the Senate Committee on Aging to discuss the government’s possible role in such a program.
It wasn’t until nearly two decades later that the Home Equity Conversion Mortgage was formalized by Congress in 1987 as part of an insurance bill. It began as a pilot program for the nation’s first federally-insured reverse mortgage loan then later became a permanent fixture in mortgage lending. In formalizing a government-insured and supervised loan numerous consumer protections were included.
Today, many refer to the Home Equity Conversion Mortgage or HECM as a reverse mortgage loan - a name that stuck, since payments are ‘reversed’ with the borrower not being required to make payments but instead the lender pays the homeowner.³ However, not all reverse mortgage loans are created equal. HECMs are federally-insured and have unique eligibility requirements and guarantees. Private reverse mortgage loans¹ offer access to one’s home equity with no required monthly payments as well, albeit with different terms and conditions.*
The good news is that while only the HECM is insured by the Federal Housing Administration (FHA) and supervised by the Department of Housing and Urban Development (HUD), private reverse mortgage loans are closely monitored by regulators. It is recommended that homeowners thoroughly research their options on which loan may best suit their needs. Costs, features, eligibility rules, insurance, and interest rates should be considered.
Whether it’s a HECM or a reverse mortgage loan, both reverse the typical mortgage and provide eligible homeowners a flexible means to tap into their home’s value.
History of Reverse Mortgage Loans
The origins and history of reverse mortgage loans reveals a loan product that has evolved dramatically over the last 40 years.
The first reverse mortgage loan was written in 1961 by Nelson Haynes of Deering Savings & Loan (Portland, Maine) to Nellie Young, the widow of his high school football coach helping her to stay in her home despite the loss of her husband’s income.
The need for reverse mortgage loans was further developed in the 1970’s with several private banks offering reverse-mortgage-style loans. These programs gave seniors money from their home but did not afford the protections of today since no FHA insurance had been put in place. Since 1989 reverse mortgage loans have grown in popularity.
In the early 1980’s the U.S. Senate Special Committee on Aging issued a report stating the need for a standardized reverse mortgage loan program. Other committees throughout the mid 80’s cited the need for FHA insurance and uniform lending practices. In late 1987 Congress passed the FHA insurance bill that would insure reverse mortgage loans. On February 5, 1988, President Ronald Reagan signed the FHA Reverse Mortgage loan bill into law. In 1989 the first FHA-insured HECM was made to Marjorie Mason of Fairway, Kansas by the James B Nutter Co.
Since 1989 reverse mortgage loans have grown in popularity, especially in the mid to late 1990’s. Despite economic upheaval and forward mortgage lending issues, reverse mortgage loans have continued to grow as a safe, government-insured loan allowing seniors to access a portion of the value of their homes while not having to make a monthly mortgage payment.
JUMBO REVERSE MORTGAGES
Today the two most popular types of reverse mortgages on the market are the Home Equity Conversion Mortgages (Insured by the FHA), and Jumbo or proprietary reverse mortgages. While FHA Reverse Mortgages have been around for 30 years, jumbo reverse mortgages are a newer option for owners of a higher-value property, gaining prominence over the last decade with flexible program choices.
The “jumbo reverse” is good news for today’s homeowners that have seen significant growth in value in recent years; homeowners of properties with values around $1,089,300 or higher often find this is the best way to incorporate their home equity into their retirement plan. Many Financial Planners recommend the jumbo reverse as a tool that allows their senior clients to tap into considerably more of their home’s value. A jumbo reverse mortgage is designed for homeowners of higher-valued properties that exceed the maximum value that FHA will consider when calculating a loan amount *, helping them access a larger portion of their home’s value. Those over the age of 55 with significant equity in a more expensive home are ideal candidates for a jumbo reverse mortgage.
*In 2023 the maximum home value considered in a federally-insured reverse mortgage (HECM) is $1,089,300. This is called the lending limit or maximum claim amount.
What benefits make a jumbo reverse different?
While jumbo reverse mortgages have many similarities to the FHA reverse, they are unique for a number of reasons. One of the most notable benefits is that many jumbo reverse mortgages offer loan amounts as high as $4 million. In addition, property values are considered up to $10 million when calculating loan amounts. Another advantage of the jumbo reverse is that these private mortgages do not charge the significant FHA insurance premiums that are required on FHA’s reverse, the Home Equity Conversion Mortgage. Traditionally one of the FHA reverse mortgage’s most significant closing costs and ongoing monthly charges.
A jumbo reverse mortgage is a private or proprietary loan which means the loans terms, conditions, and guarantees are established by the lender versus the typical FHA-insured reverse mortgage which is administered by HUD. In addition to not incurring the cost of mortgage insurance, today’s jumbo reverse mortgages are available with very low closing costs, even significantly lower than closing costs for the refinance of a traditional home loan. Some jumbo reverse programs have closing costs as low as $125.
Here are some of the features of today’s jumbo reverse mortgages (features and benefits vary by the issuing bank and jumbo loan that is chosen).
Here are just a few of the unique ways other homeowners have used their jumbo reverse mortgage:
-"Our Jumbo Reverse improved our cash flow by eliminating a required mortgage payment and improved our feeling of security with a sizable standby line of credit"
-"My grandchildren will be graduating from college with no student loans thanks to our Jumbo Reverse Mortgage"
-"With our Jumbo Reverse, we put a new roof on our home and updated the kitchen and bathrooms making our home more secure, comfortable...and valuable...while eliminating our required mortgage payment and all without taking on any new monthly payment”.
Reverse Mortgage Myths and Facts
Myth: You immediately sign over ownership to your home.
Fact: You retain title to your home as long as you meet the loan guidelines and requirements such as: maintaining the property, paying all property charges such as property taxes, homeowners insurance, flood insurance, and homeowners association dues (if applicable), and avoiding extended absences from the home longer than six months.¹ As with any other mortgage, a lien is placed on the property to secure future repayment of the loan.
Myth: If you take out a reverse mortgage loan your children won't be left with any of the home equity.
Fact: While the amount of equity typically decreases over time with a reverse mortgage, it doesn't mean there will be no equity left when the last borrower dies. There are several factors that go into how much equity will be left, such as home appreciation, length of the loan, and optional monthly payments. There can still be equity left for your children.
Myth: Your children will be responsible for repaying the loan when you die
Fact: A reverse mortgage is a non-recourse loan, meaning that the lender can only be repaid from the proceeds of the sale of the home and not more than the value of the home. That means even if the home decreases greatly in value, the maximum repayment amount can only be up to the value of the home. While your heirs will not be responsible for the loan repayment, they will still have the option to refinance the loan to purchase it for themselves.
Myth: A reverse mortgage requires that you make monthly mortgage payments.
Fact: While you can choose to make mortgage payments, they are not required with a reverse mortgage. The borrower is still responsible to maintain the property, pay property taxes, homeowners insurance, flood insurance, and homeowners association dues (if applicable).¹
Myth: You must have your first mortgage paid off before you can qualify for a reverse mortgage.
Fact: While any debt on your home's title must be paid off at closing and you must have adequate equity in the property, it is not required that you own your home "free and clear" before getting a reverse mortgage.
Myth: You are not allowed to sell your home if you have a reverse mortgage.
Fact: You can sell your home if you wish and - just like any other mortgage loan - you must pay off the reverse mortgage at closing. There are also no prepayment penalties if you choose to pay off your loan early or make loan payments.
Some Additional HECM Loan / Reverse Mortgage Loan Facts
I understand all this information can seem overwhelming. Please call me today at (858) 220-9039 to discuss a possible program that uniquely meets your needs.
Michael D. Lowary
Certified Reverse Mortgage Specialist
Licensed Mortgage Professional since 1991
Mike Lowary has been helping customers afford the home of their dreams for over 30 years and he loves what he does.
Company NMLS: 135622
Company DRE: 01821025
www.nmlsconsumeraccess.org
Mike Lowary - The Loan Guy
C2 Financial
122230 El Camino Real #100
San Diego, CA 92130
Direct: (858) 220-9039
Mike@MikeTheLoanGuy.com
Powered By LenderHomePage.com
Mike The Loan Guy strives to ensure that its services are accessible to people with disabilities. Mike The Loan Guy has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Mike The Loan Guy makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows MikeTheLoanGuy.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Mike The Loan Guy accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Mike The Loan Guy continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Mike The Loan Guy website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
If you are experiencing difficulty with any content on Mike The Loan Guy website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: Mike@MikeTheLoanGuy.com
This site uses cookies to process your loan application and other features. You may elect not to accept cookies which will keep you from submitting a loan application. By your clicked consent/acceptance you acknowledge and allow the use of cookies. By clicking I Accept you acknowledge you have read and understand Mike The Loan Guy's Privacy Policy.