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Reverse Mortgage Guide

A reverse mortgage is an increasingly popular consumer loan for senior homeowners age 62+. It allows these senior homeowners to tap into the home equity that has been built up. There are no monthly mortgage payments but homeowners are still responsible for paying property taxes, insurance, and maintenance. The repayment of the loan is deferred until the homeowner dies, sells or moves out of the home. Because there are no monthly mortgage payments and homeowners can generally receive their home equity as tax-free cash this particular type of loan has seen over 1,000,000 seniors take advantage.(1)


How Does a Reverse Mortgage Work?

To qualify for a reverse mortgage loan you must own a home, be at least 62 years old and have enough equity built up in your home. The loan works by making payments to the borrower based upon a percentage of the equity that has been built up in the home. The loan is repaid when the borrower sells the home, moves out of the home or dies. The factors that impact the number of proceeds in which you may be eligible for include your age, the value of your home, interest rate and whether your home conforms with the Federal Housing Administration’s (FHA) mortgage limit of $679,650.


What Are The Pros and Cons of a Reverse Mortgage?

There are several considerations to make before deciding to proceed with a reverse mortgage loan. As with any large decision, it’s helpful to have an understanding of the pros and cons associated. Some of them include:

Pros:

  • You continue to live in your home and retain title to your home as long as you continue to pay your property taxes, insurance, and maintenance.
  • You generally receive the proceeds of the loan as tax-free cash in which you can use the money as you see fit. It is recommended though to speak with your financial advisor to verify your specific situation.
  • You do not make any monthly mortgage payments during the course of the loan. You do have to follow the constructs of the loan guidelines and are responsible for paying your property taxes, insurance and maintenance.
  • A reverse mortgage is a non-recourse loan. Neither you nor your heirs are liable for any amount of the mortgage that transcends the value of your home.
  • You choose the disbursement option. There are several ways in which you can receive the proceeds of the loan.

Cons:

  • Fees associated with the loan are generally higher than with other financial products. You should ask your lender about options available.
  • The balance of the loan increases over time as does the interest on the loan and the fees associated.

What is the Process of Getting a Reverse Mortgage?

The process of getting a reverse mortgage loan is pretty straightforward and typically entails the following steps:

  1. Research and identify companies that may be right for you. Fill out an online form or give them a call to start the process.
  2. Discuss what options may be available to you; what you may qualify for; what the time required to close your loan looks like and to have your questions answered.
  3. Attend a counseling session from a licensed third party counseling agency. Housing and Urban Development (HUD) maintain a list of counselors available in your state.
  4. Complete an application with the company that you’ve selected. This is similar to a traditional forward mortgage in that you fill out several pages of documentation to formally apply.
  5. Underwriting and loan processors then take over and handle everything from getting your house appraised to ensuring that all of your paperwork is in order.
  6. Close your loan and choose your disbursement options. At this stage, you’ve completed the process and can now choose exactly how you’d like to receive the proceeds of the loan and when.

How We Rate Reverse Mortgage Lenders

We independently identify reverse mortgage companies. From there our editors review them in a myriad of ways from impartially secret shopping to checking consumer reviews to validating fees, types of products offered, and time to close amongst other criteria. Our goal is to present objective representations of companies to give consumers informed information to make a decision. Disclosure: We do receive advertising compensation from some partners. For additional details please click here.


References

(1) NRMLA. 2018. Annual HECM Endorsement Chart. [ONLINE] Available at https://www.nrmlaonline.org/2018/02/01/annual-hecm-endorsement-chart. [Accessed 5 February 2018].

 

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