Another concern for those entering retirement is what options they have if they find themselves needing long-term care such as in home healthcare services or if they need to move into a nursing home.  

Can a homeowner still get a reverse mortgage if they need eldercare? Will they have to give up their reverse mortgage if they move into a nursing home? What if they receive in-home care?  

In this article, we will explore all of these questions and more.  

What is a Reverse Mortgage and How Does it Work? 

Having a basic understanding of a reverse mortgage will help lay the foundation for how a reverse mortgage can and can’t be used.  

The most common type of reverse mortgage loan is the home equity conversion mortgage (HECM). The other types are single-purpose reverse mortgages and jumbo reverse mortgages.  

The standard reverse mortgage is backed the federal government through the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD).  

A reverse mortgage works by paying off the current traditional mortgage, if there still is one. The remaining reverse mortgage proceeds can then be received in the form of one or more of the following payment options: a lump sum payment, a line of credit, and/or monthly payments.  

The amount of money that homeowners are able to obtain through a reverse mortgage depends on the value of the home, the age of the youngest borrower, and the interest rates.  

The FHA does put a lending limit on how much homeowners are able to borrow through a reverse mortgage. The current lending limit as of 2024 is $1,149,825. 

The reverse mortgage loan becomes due when the senior homeowner decides to sell, he or she no longer lives in the home as their principal residence, or when the last remaining borrower passes away.  

What Can a Reverse Mortgage be used for? 

There are no rules about how a reverse mortgage has to be used, which gives borrowers a lot of flexibility. Some common uses of a reverse mortgage:  

• Supplementing monthly income. One of the most common uses of a reverse mortgage is to supplement monthly retirement income. This can be especially beneficial for retirees who may not have enough savings or income in retirement accounts to cover their expenses. 

• Paying off credit card debt. Reverse mortgages can also be used to pay off existing debts, such as credit card debt or medical bills.  
• Home renovations and repairs. Many homeowners use reverse mortgages to fund home renovations or repairs. This can include updating kitchens or bathrooms, replacing the roof, or making home modifications to make the property more accessible for those who have developed mobility challenges. 
• Delaying Social Security benefits. Some individuals choose to take out a reverse mortgage to delay claiming their Social Security benefits. By doing so, they can increase their monthly benefit amount when they eventually start receiving Social Security. 
• Managing unexpected expenses. A reverse mortgage can provide a safety net for homeowners facing unforeseen financial challenges. Whether it’s a major car repair or a sudden home repair, having access to additional funds can help alleviate stress. 

How to Use a Reverse Mortgage to Pay for Long-Term Care? 

There are multiple options for how you can receive reverse mortgage proceeds: as a lump sum, monthly payments, a line of credit, or a combination of the three. Two of these options may be especially ideal when it comes to paying for long-term care, depending on your goals.  

First, if one of the primary reasons you are considering a reverse mortgage is to have funds available in the event that you need eldercare services, you may want to opt to receive your funds as a line of credit.  

A reverse mortgage line of credit allows you to use the funds on an as needed basis. This is ideal for eldercare services since you don’t know when you will need it. Another advantage of a reverse mortgage line of credit is that the untouched loan actually grows over time. 

Second, another way to pay for long-term care is to purchase a long-term care insurance policy. The premiums for long-term care insurance range from about $80 to $600 depending on the age and type of insurance.  

If this is a cost that you are not able to cover with your current income, a reverse mortgage in the form of monthly installments could help offset those costs.  

Our reverse mortgage specialists will present you with a variety of options for you to consider. 

Bottom Line 

If you are considering a reverse mortgage and you would like to find a way to use it to fund long-term care, you do have some options as long as you don’t move out of the home for more than 12 consecutive months.  

If you have more questions about how to use a reverse mortgage to pay for eldercare, please reach out to one of our reverse mortgage specialists or find a loan officer in your area.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

But before applying for a reverse mortgage, you will want to get an idea of how much you will be able to receive.  

The amount of money you can receive from a reverse mortgage is impacted by several factors and variables, which we detail below.  

Ultimately, to get the most accurate idea of how much you can get from a reverse mortgage, we recommend talking to one of our reverse mortgage specialists who will be able to answer all of your questions.  

What is a Reverse Mortgage and How Does it Work? 

The home equity conversion mortgage (HECM), commonly referred to as a HECM reverse mortgage or HECM loan, is the most prevalent type of reverse mortgage. Other options include single-use reverse mortgages and proprietary reverse mortgages, such as the jumbo reverse mortgage, tailored to those with specific needs. 

Reserved exclusively for homeowners aged 62 or older, reverse mortgages hinge on the accumulation of substantial equity in the homeowner’s primary residence. It’s important to note that investment properties and vacation homes don’t meet the eligibility criteria for a reverse mortgage. 

A reverse mortgage can serve as a financial lifeline, enabling senior homeowners to tap into the equity of their homes without shouldering monthly payments, unlike a home equity loan or a home equity line of credit (HELOC). 

Upon obtaining a reverse mortgage, the first step will be to settle any outstanding traditional mortgage. Once that’s taken care of, homeowners have a range of choices regarding the remaining reverse mortgage proceeds. They can opt for a lump sum payment, monthly installments, a line of credit, or a combination of those options. 

Although a reverse mortgage can offer financial flexibility to older homeowners, it’s crucial to remember that certain responsibilities still rest on the borrower’s shoulders. These include paying property taxes, maintaining homeowners insurance coverage, and ensuring the home’s overall upkeep. 

Notably, the security of a reverse mortgage stems from its backing by the federal government. The U.S. Department of Housing and Urban Development (HUD) effectively regulates reverse mortgages, which is further insured by the Federal Housing Administration (FHA). Such measures aim to safeguard both borrowers and lenders. 

Age of the Youngest Borrower 

The age of the borrowers is considered one of the most important factors that affects how much borrowers are able to receive.  

To meet the eligibility criteria for a reverse mortgage, borrowers must reach the age of at least 62. However, when multiple individuals own the property, the borrowing capacity is contingent upon the age of the youngest homeowner. 

As a general rule, the older the borrower, the larger amount they will be able to receive.  

FHA Lending Limit 

Every year, the FHA determines the lending limit for HECM reverse mortgages. This is the maximum amount that homeowners are able to borrow from a reverse mortgage.  

The current lending limit for 2024 is $1,149,825. 

The principal limit is calculated with the lending limit as the baseline.  

For homeowners who have properties that are worth more than the FHA lending limit, several lenders do offer jumbo loans, which are propriety reverse mortgages that present an enticing option for borrowers seeking higher lending limits.  

These jumbo reverse mortgages have the potential to reach substantial amounts, soaring as high as $4 million. It’s important to note that jumbo reverse mortgages are solely supported by the lender, as they do not enjoy the backing of the FHA insurance found in other mortgage options.  

The Home’s Value 

With that in mind, one of the factors that will be considered is the current market value of the home.  

During the reverse mortgage application process, the lender will order an appraisal of your property. The appraised value of your home will be used to determine how much equity the home has accumulated, which is important for finalizing the total loan amount.  

Equity 

The equity is determined by making a simple calculation: take the current market value and subtract any money that is owed on the home. This may include the traditional mortgage or any other loans that may have been obtained such as a home equity loan or home equity line of credit (HELOC). 

The less money you owe on any such loans, the more equity that can be used for the reverse mortgage loan.  

There is not an exact amount or percentage of equity you need to obtain a reverse mortgage, but there will need to be enough money to pay off the current mortgage, if there is one, and the costs and fees that come with a reverse mortgage.  

Distribution Type 

Homeowners exploring reverse mortgages will have a range of options for how the funds are disbursed. This includes the option to receive their money through various avenues: a lump sum payment, fixed monthly payments, a line of credit, or a tailored combination of these options.  

The method chosen for receiving the funds can also influence the overall amount that one may receive. This element of flexibility allows homeowners to customize their reverse mortgage experience in a manner that best aligns with their unique financial goals and needs. 

Here are the options and how they each work in terms of payouts:  

• Lump Sum. The single disbursement lump sum payout is the only option that comes with a fixed interest rate. The being said, the lump sum option does come with a handful of limitations you will want to consider. 
• Monthly Payments. Borrowers have the choice between a tenure payment plan or term payment plan. Under the tenure plan, you will be able to receive payments for the rest of your life. The lender calculates the payments assuming you will live to 100 years old.  
• Line of Credit. Receiving funds as a line of credit may have the potential to give borrowers both the most flexibility and possibly the most amount of money. A line of credit allows homeowners to use the funds as needed. One of the advantages of a line of credit is that the untouched balance actually grows.  

Interest Rates 

Interest rates play a role in how much equity homeowners have access to: As reverse mortgage interest rates go up, it lowers the total principal amount available to be disbursed to borrowers. As interest rates go down, it means there is more principal available to be disbursed to the homeowner.  

The interest charged is paid back with the loan balance when the homeowners sell the home, no longer live in the home full time, or when the last remaining borrower passes away.  

Closing Costs and Other Fees 

When a reverse mortgage loan closes, borrowers do need to pay some closing costs that will also affect the total amount that homeowners receive.  

Alternatively, borrowers may also choose to pay for these costs out of pocket, which means that they will not impact the total loan amount.  

Reverse mortgage customers have the choice between four loan programs: a traditional reverse mortgage, a reverse mortgage for purchase, a reverse mortgage refinance, and a jumbo reverse mortgage.  

In this article, we will provide you with all the information you need to know about jumbo reverse mortgages so that you can know whether or not it is the right choice for you.  

Let’s dive in.  

What Is a Jumbo Reverse Mortgage? 

Jumbo reverse mortgages are proprietary reverse mortgage loans offered by some reverse mortgage lenders.  

It allows homeowners to borrow more than what is allowed with a traditional reverse mortgage. With a jumbo reverse mortgage, homeowners are typically able to borrow up to $4 million.  

They are offered by jumbo reverse mortgage lenders to those who have high-value homes. 

Jumbo reverse mortgages sometimes go by different names such as jumbo loans, jumbo reverse mortgage loan, jumbo reverse loans, and jumbo loans. 

Jumbo reverse mortgages are considered a proprietary product and therefore, given a white labeled name. For example, here are Mutual of Omaha Mortgage, our jumbo reverse mortgage is called the HomeSafe Reverse Mortgage. 

What is the Difference Between a Jumbo Reverse Mortgage and a Traditional Reverse Mortgage? 

The traditional reverse mortgage is known as the home equity conversion mortgage (HECM). This reverse mortgage is available to homeowners who are at least 62 years old and have specific levels of equity in their home in relation to the age of the youngest borrower.  

This reverse mortgage is backed by the federal government, which means that it is regulated by the U.S. Department of Housing and Urban Development (HUD) and insured by the Federal Housing Administration (FHA). 

Each year, the FHA sets a lending limit on how much homeowners can borrow with their reverse mortgage. The current maximum loan amount as of 2024 is $1,149,825 

With a jumbo reverse mortgage there are some key differences. For example, in some states it is available to homeowners that are as young as 55 years of age. Jumbo reverse mortgages are not backed by any government agency. 

The limit on jumbo reverse mortgages typically tops at $4 million, although the exact amount may vary depending on the lender you decide to work with.  

At Mutual of Omaha Mortgage, our HomeSafe Reverse Mortgage allows qualifying homeowners to borrow up to $4 million. 

Benefits of a Jumbo Reverse Mortgage 

The primary benefit of a jumbo reverse mortgage is that homeowners can borrow more than the FHA lending limit.  

Another potential benefit is homeowners may be able to access it before 62 – in some cases as young as 55 years of age. However, this change will vary depending on the lender and the state where you live.  

In addition, jumbo reverse mortgages do not require borrowers to pay mortgage insurance premiums, which can be a hefty cost that comes with traditional reverse mortgages. A mortgage insurance premium is typically paid at closing, and then it is also an ongoing annual cost that must be paid throughout the life of the loan. 

There are also protections that come with jumbo reverse mortgages that are similar to the protections that traditional reverse mortgages are afforded as FHA-insured loans.  

For example, just like a traditional mortgage, jumbo reverse mortgages are also a non-recourse loan, which means that borrowers will never owe more on the loan than the appraised value of your home.  

Traditional reverse mortgages limit how much a borrower can receive in the first year to 60 percent of the total loan amount. With a jumbo reverse mortgage, borrowers can receive 100 percent of the total loan amount in the first year.  

How a Jumbo Reverse Mortgage Works 

A jumbo reverse mortgage works in a similar way to a traditional reverse mortgage. A jumbo reverse mortgage pays off the current conventional mortgage on the home, if there still is one.  

For the remaining loan proceeds, borrowers will receive that money as a lump sum.  

Homeowners are obligated to pay the property taxes, homeowners insurance, keep up on home maintenance requirements, and keep the home as the primary residence.  

The loan is paid back once the homeowners decide to sell the home, it is no longer their primary residence, or they fail to meet the requirements detailed above.  

The Jumbo Reverse Mortgage Loan Process 

The first step in obtaining a reverse mortgage is to talk to one of our reverse mortgage specialists to find out if you qualify. 

Next, applicants will need to complete a counseling session with a third-party counselor approved by the U.S. Department of Housing and Urban Development (HUD).  

After receiving a certificate of completion from the counseling session, the homeowners may then file their application which will also include submitting several required documents.  

The application will then be processed and sent to underwriting.  

Underwriting will finalize and approve the loan. Once this is done, a closing date will be set. Once the closing documents are signed, the borrowers can start receiving their funds in the method they chose during the application process.   

Borrowers can cancel the loan at any time, including three days after signing the closing documents.  

Please note that the jumbo reverse mortgage application process can take up to 45 days to complete from application to closing.  

Jumbo Reverse Mortgage Eligibility Requirements 

In order to qualify for a jumbo reverse mortgage, you need to meet the following requirements:  

• Age Requirements. You must meet the age requirement, which may vary from 55 years of age to 62, depending on the lender and the state where you live.  
• Primary Residence. The home you want to get a reverse mortgage for must be your primary residence, which means you live in it most of the year.  
• Property Type. The property must be a single-family home, a qualifying condominium, a townhome, or a multi-family residence with one to four units in which the homeowners live in one of the units.  
• Maintenance. The home must be in good, maintained condition.  

• Taxes. You must be up to date on the property taxes and be able to continue to pay the property taxes.  
• Homeowner’s Insurance. You must also be up to date on your home insurance premiums and be able to continue to pay the premiums.  
• Other Fees. You must also be current on other fees such as homeowner’s association (HOA) fees.  

When Is the Jumbo Reverse Mortgage Repayable? 

A jumbo reverse mortgage is paid back when the homeowner decides to sell the home, the home is no longer the primary residence of the homeowner, or if the homeowners are no longer able to meet the obligations of the loan such as paying the property taxes or the homeowner’s insurance.  

Homeowners may also make payments toward the loan balance at any time without facing any penalties.  

 
Pros and Cons of a Jumbo Reverse Mortgage  

Just like any major financial decision, it is important to weigh the pros and cons, so you are an informed consumer. Here are the pros and cons of a jumbo reverse mortgage:  

Pros: 

• Protections. Jumbo reverse mortgages come with several protections that are like traditional reverse mortgages. These include non-recourse benefits and protections for non-borrowing spouses. 
• Loan Amount. Consumers who qualify for a jumbo reverse mortgage are able to borrow more than allowed with a traditional reverse mortgage, which is limited to the current FHA lending limit of $1,089,300. 
• Fund Access. With a traditional reverse mortgage, borrowers are not permitted to receive more than 60 percent of the total loan proceeds in the first year. With a jumbo reverse mortgage, borrowers may access 100 percent of the loan proceeds in the first year.   
• No Mortgage Insurance Premium. Jumbo reverse mortgage borrowers do not have to pay mortgage insurance premiums as required by traditional reverse mortgages.  
• Flexibility. Just like traditional reverse mortgages, the proceeds from a jumbo reverse mortgage can be used however you want.  

• Fixed Rates. All jumbo reverse mortgages come with fixed interest rates.  

Cons: 

• Not FHA Insured. Since jumbo reverse mortgages are private loans, they are not FHA insured like traditional reverse mortgages. Your reverse mortgage specialist will help you understand the loan terms and the protections we offer here at Mutual of Omaha Mortgage.  
• Inheritance. Because a jumbo reverse mortgage is a loan borrowed against the equity of the home, it also means that there will be less to leave to your heirs. You can still leave the home to your heirs, but they will need to pay off the reverse mortgage by either paying for it in cash or taking out a traditional mortgage.  
• Fewer Options for Receiving Money. The funds from a jumbo reverse mortgage can only be received as a lump sum. By comparison, a traditional reverse mortgage can also be received as monthly payments or a line of credit.  

Bottom Line 

A jumbo reverse mortgage can be a viable option for homeowners who are looking to access more funds than is allowed with a traditional reverse mortgage. With the ability to borrow up to $4 million, homeowners can tap into their home equity and use the funds as they see fit.  

Additionally, jumbo reverse mortgages offer certain benefits such as no mortgage insurance premiums and the ability to receive 100 percent of the loan proceeds in the first year.  

However, it’s important to carefully consider the pros and cons before making any major financial decision.  

If you’re interested in exploring a jumbo reverse mortgage further, reach out to one of our reverse mortgage specialists to discuss your options and eligibility by calling the phone number here or finding a loan officer in your area.  

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

One program that makes relocating with a reverse mortgage possible is the Home Equity Conversion Mortgage for Purchase (HECM for Purchase), also known as a reverse mortgage for purchase or H4P.  

The HECM for Purchase program enables borrowers to use a reverse mortgage loan to finance a portion of their new home purchase. But how does it work? 

How Does a HECM for Purchase Work?   

When buying a home, you usually have two options: pay cash or make a down payment and finance the rest with a traditional mortgage. With a HECM for Purchase, you have a third option.  

HECM for Purchase borrowers typically make a large down payment, around 50%, and finance the remaining balance through a reverse mortgage. This allows you to use the money you would have used to buy the house to do other things while still owning the home. And for the amount that is financed with the reverse mortgage, no monthly mortgage payments are required.  

With a traditional reverse mortgage, you receive cash in the form of a lump sum, line of credit, and/or monthly payments. However, with a HECM for Purchase, you can use that money to purchase a new principal residence while the remaining reverse mortgage proceeds goes to the borrower. 

If you plan to get a HECM for Purchase, you will need to connect with a lender who specializes in these loans. It is also recommended that you contact a real estate agent who works with the HECM for Purchase product. Your HECM loan officer may be able to help connect you with one.  

Mutual of Omaha Mortgage has several loan officers who specialize in the HECM for Purchase program. Go here to find one in your area.

Who is a HECM for Purchase for?   

A HECM for Purchase may be a good option for those who are planning to relocate, downsize, or upsize in retirement. This option has several advantages over paying for the entire home purchase with cash.  

First, it allows retirees to keep more of their nest egg, which is important as they head into retirement. Second, it makes it easier to qualify for a nicer home than you might without it. Third, it reduces monthly costs since you will no longer have a monthly mortgage payment. Last, it’s an excellent option for those who want to move into a new home and remain there as they age. 

While most retirees tend to retire in place, there are several reasons why retirees may want to move, including the following:  

• Their current home may be more house than what they need, and they want to downsize.  
• Their current home may be too expensive to maintain, or they want to live in a retirement community.  
• They may want to move closer to their family  
• Their neighborhood may not be as safe as it was when they first bought it years ago, and they want to move to a safer community.  

• They may want to move to a warmer climate  
• They may want to upsize. According to a study by Merrill Lynch and Age Wage, 49% of retirees don’t downsize, and 30% purchase larger homes when they buy a new home in retirement. 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Related Posts:

• Do I Qualify for a Reverse Mortgage?

• Reverse Mortgages Can Provide Shelter During Market Storms

• Is a Reverse Mortgage a Good Idea?

A reverse mortgage has emerged as a valuable retirement tool for homeowners aged 62 and above. Unlike traditional mortgages, a reverse mortgage allows homeowners to convert a portion of their home equity into cash without the need for monthly mortgage payments.  

But what can a reverse mortgage be used for? In this article, we will explore the diverse range of possibilities that a reverse mortgage offers, enabling retirees to enhance their retirement years and achieve their unique financial goals.  

Let’s dive in.  

What are the Reverse Mortgage Requirements? 

Reverse mortgages have distinct requirements that differ significantly from traditional mortgages. Here are the key points to consider: 

• Age. To qualify for a HECM reverse mortgage, at least one of the homeowners must be 62 years of age or older.  
• Residency. The home designated for the reverse mortgage must be the primary residence of the homeowners. It is not possible to obtain a reverse mortgage for a second home or an investment property. 
• Equity. Homeowners are required to have equity accumulated in their home to be eligible for a reverse mortgage. The exact amount will vary depending on the lender and the current interest rates.  

• Property Type. The eligible property types for a reverse mortgage include single-family homes, two-to-four-unit properties where the homeowners occupy one of the units, townhouses, FHA-approved condominiums, or manufactured homes that meet HUD’s requirements. 
• Maintenance and Fees. The home must be well-maintained and in good condition. Homeowners are responsible for the ongoing maintenance of the property, as well as paying property taxes and insurance. 

FAQs 

Can you withdraw money from a reverse mortgage? 

It depends on how you opt to receive your funds. Your choices are to receive your funds as a lump sum, monthly payments, or a line of credit. If you choose to receive your reverse mortgage funds, yes, you are able to withdraw money from your reverse mortgage.  

What is the most common use of a reverse mortgage? 

Most reverse mortgage customers use the funds to cover basic needs such as covering monthly expenses or to cover other more immediate needs such as paying off consumer debt, according to the National Council on Aging (NCOA).  

The goal for reverse mortgage borrowers when taking out a HECM loan is to make it possible for them to stay in their current home longer, NCOA added.  

While there are no rules about how reverse mortgage funds must be used, they are not typically used for travel or similar discretionary costs.  

Is money from a reverse mortgage taxable? 

A reverse mortgage is a loan, so it is not considered income. For this reason, the money received from a reverse mortgage is not taxable.  

Virginia woman Marjorie Fox told The New York Times that one of the reasons she decided to get a reverse mortgage even though she had significant retirement savings is because if she found that she needed extra cash for a specific reason, she would rather take the money from her tax-free reverse mortgage line of credit than her IRA where she would have to pay taxes on withdrawals.  

What are the restrictions on a reverse mortgage?  

As mentioned previously, there are no restrictions on how reverse mortgage funds can or can’t be used.  

That being said, there are obligations that must be met in order to continue to keep the loan. These obligations include keeping the home as the primary residence, staying up to date on property taxes, paying homeowners insurance, and any HOA fees, if required.  

What is the maximum amount you can get from a reverse mortgage? 

The Federal Housing Administration (FHA) sets a lending limit for HECM reverse mortgages every year. The current FHA lending limit for 2024 is $1,149,825.  

The amount you will be able to borrow will depend on a combination of factors such as the home value, the age of the oldest borrower, and the interest rate.  

If you have a home that has more equity than the FHA lending limit, several major reverse mortgage lenders, including Mutual of Omaha Mortgage, offer a proprietary reverse mortgage, also known as jumbo reverse mortgages, that typically allows homeowners to borrow up to $4 million.  

Bottom Line 

In conclusion, a reverse mortgage is a versatile financial tool that offers numerous possibilities for homeowners aged 62 and above. It allows retirees to enhance their retirement years and achieve their unique financial goals.  

With a reverse mortgage, homeowners can supplement their retirement income, make home renovations or repairs, pay off credit card debt or personal loans, cover healthcare costs, fulfill their travel aspirations, and even purchase a new home through the HECM for purchase program.  

The funds acquired through a reverse mortgage can be received as a lump sum, monthly payments, or a line of credit, providing flexibility and convenience. It’s important to note that reverse mortgage funds are not subject to taxation, offering additional financial benefits.  

While there are obligations to be met, such as maintaining the property as the primary residence and keeping up with property taxes and insurance, a reverse mortgage can be a valuable tool for older homeowners seeking stability and financial freedom in their retirement years. 

Before taking out a reverse mortgage, it is always recommended that you discuss this decision with your family members and financial advisor. 

For more information, grab our free info guide here.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

Related Posts:

• Is a Reverse Mortgage a Good Idea?

• How to Apply for a Reverse Mortgage

• Reverse Mortgage vs HELOC: Which One is Best for Accessing Equity?

The Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a federally backed loan, and it is legitimate financial product designed to allow older homeowners a unique way to access the equity in their homes, but unfortunately, that doesn’t stop scammers out there from trying to take advantage of vulnerable Americans. 

The truth is that a reverse mortgage isn’t right for everyone, but for those who are facing specific challenges or who have certain needs, it may be the solution they’ve been looking for.  

In this article we will discuss when a reverse mortgage is a good idea, and when it isn’t.  

Let’s dive in.  

When is a Reverse Mortgage a Good Idea 

Reverse mortgages used to be viewed as a last resort to pursue when retired homeowners needed additional cash, but this is no longer the case, The New York Times said in a report in 2022. 

A reverse mortgage is now seen as a potential solution for a variety of needs and situations, including the following:  

• When you plan to retire in place. A reverse mortgage makes it easier for those heading into retirement to be able to retire in place. It can be used to help supplement income, fund home renovations, or cover other costs. While retirement communities abound throughout the country in states such as Florida, Arizona, and elsewhere, a study from the Center for Retirement Research found that most retired Americans stay in the same homes where they lived in their early 50s.   

• When you need to supplement your income. If homeowners find that Social Security payments and other sources of income aren’t cutting it, they may look for other ways to supplement their income. “Home equity is the largest store of savings for most households entering retirement,” the Center for Retirement Research said in a report.  
• When you need added protection. A study conducted every three years by the Federal Reserve found that most Americans are not saving enough for retirement. The study found that Americans from age 55 to 64 has a median retirement savings of $134,000. While this is a decent amount of money, it’s not enough to cover all the costs expected in retirement. For those who find themselves in this situation, a reverse mortgage may be the solution they need to offset costs.  
• Preserve savings and cash reserves. Some Americans are starting to turn to reverse mortgages as a way to preserve their savings and cash reserves. Virginia woman Marjorie Fox told The New York Times that she decided to take out a reverse mortgage for exactly this reason — she wanted to prepare for the unexpected, so she decided to receive her reverse mortgage funds as a line of credit.  
• Protect investment portfolios. The stock market goes up and down, which affects 401ks and other investments. If the stock market takes a downturn when it’s time to retire, a homeowner could use a reverse mortgage to supplement their income while they wait for the market to recover before they pull out their investments.  
• Delay claiming Social Security benefits. Social Security benefits go up a small percentage for each month retirees delay claiming their benefits. A reverse mortgage could be used to supplement income until Social Security beneficiaries are ready to claim their benefits. Homeowners can take out a reverse mortgage at age 62. However, they can delay taking Social Security benefits until age 70. 

• Pay large medical bills and credit card debt. For Americans heading into retirement with a large amount of credit card debt or medical bills, a reverse mortgage could also be used to pay off this debt.  

There are other ways to access your equity without taking out a reverse mortgage such as a Home Equity Loan, a Home Equity Line of Credit (HELOC), cash-out refinancing, or selling the home.  

However, a home equity loan, a HELOC, and a cash-out refi will all require monthly payments to pay them back, which can be difficult in retirement, especially if the homeowners are living on a fixed income. One of reasons a reverse mortgage works so well for those in retirement is because it is not paid back with monthly payments.  

Reverse Mortgage Protections 

Because there are scammers out there, the federal government has established several added protections to give homeowners additional peace of mind. Some of those protections include the following:  

• Third-party counseling. Before homeowners can submit an application for a reverse mortgage, they must first complete a counseling session with a counselor who is approved by the U.S. Department of Housing and Urban Development (HUD). The counselor will ensure that the potential borrowers understand what a reverse mortgage is, how it works, as well as potential alternatives. This is an added layer of protection to make sure that homeowners understand the product and do not fall prey to would be scammers.  
• Non-recourse loan. A HECM reverse mortgage is a non-recourse loan. This means that you will never owe more than what the home is worth. This protects homeowners in the event that the loan is larger than the market value of the home.  
• Right to cancel. Homeowners have the right to cancel a reverse mortgage at any time during the application process including three business days after signing closing documents.  
• First year principal limit. When homeowners take out a reverse mortgage as a lump sum, they may only take out 60% of the loan amount during the first year. This is to ensure that your money lasts longer.  

• Non-borrowing spouses. The FHA also has protections for non-borrowing spouses in the event that the borrower leaves the home for more than 12 months. This may happen if he or she goes to live in a long-term healthcare facility, or the borrower passes away while the non-borrowing spouse is still living in the home. 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

The options include staying in your current home, downsizing to a smaller home, relocating to another city to be near family, moving to a different climate, moving in with children or other family members, and more. 

During retirement, many people look for ways to offset costs and make the most of their hard-earned savings as cash flow can be challenging at this time. 

For those who have lived in their homes for a considerable amount of time, there is likely a substantial amount of equity, which can be accessed in several ways. Two common options for retirees are a reverse mortgage or selling the home. 

We will examine both options carefully and weigh the pros and cons to help you determine which one makes the most sense for your situation.  

Eligibility Requirements for Reverse Mortgage 

Just like any other financial product, there are eligibility requirements reverse mortgage borrowers need to meet. These include the following:  

• You must be at least 62 years of age 

• The property in question must be your primary residence 
• You must have sufficient equity in your home  

If you are unsure about whether you qualify, the best way to make sure is to talk to one of our reverse mortgage specialists. 

What are the Benefits of a Reverse Mortgage? 

One of the most significant advantages of a reverse mortgage is that it allows homeowners to maintain possession of their home while still accessing their equity. This is ideal for those who want to retire in place.  

In addition, it eliminates monthly mortgage payments while potentially giving homeowners access to additional cash.  

Several retirees find themselves living on a fixed income, which can make it difficult to cover monthly expenses, pay off debts, pay for medical bills, and any other unexpected expenses.  

A reverse mortgage can make a significant difference in helping homeowners to offset those costs.  

A reverse mortgage can also be used by retirees to supplement their income if they don’t want to take out their retirement savings when the market is in a downturn.  

Reverse Mortgage vs. Selling Your Home: Weighing Your Options 

The final choice between a reverse mortgage or selling your home will come down to evaluating your personal situation and needs. 

If you’re planning to remain in your current residence and need extra funds for income support, money for major home repairs or renovations, or an emergency fund, then a reverse mortgage could be the optimal solution. 

If you’re ready to move on from owning a home and gain some return on your investment, then selling your property could be the best option. 

If you would like to sell your current home and purchase a new home, and you like the idea of retiring without monthly mortgage payments, another option to consider is a reverse mortgage for purchase.  

Whenever making a decision that has financial implications, such as selling your home or obtaining a reverse mortgage, it’s important to speak with a financial advisor and the family members who may be affected by your choice. 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

This type of loan differentiates itself from a traditional home equity loan or home equity line of credit (HELOC) by offering an alternative for older homeowners who want to access their equity without increasing their financial burden.  

In this article, we’ll go over the costs and fees associated with taking out a reverse mortgage so that homeowners can make an informed decision. 

Here is a brief overview of what you can expect to learn:  

• How reverse mortgage interest rates work 
• Fees associated with taking out a reverse mortgage  
• Other costs you may incur while the reverse mortgage loan is active 

By the end of this article, you should have an understanding of how much it will cost you to take out a reverse mortgage and as well as the costs and fees you can expect to pay throughout the life of the loan.  

What is a Reverse Mortgage and How Does it Work?

A reverse mortgage is a type of loan that is backed by the federal government allows homeowners who are 62 years of age or older to borrow against the equity in their home.  

A reverse mortgage can only be used on a property that is the primary residence of the homeowners and has significant equity. 

The funds from a reverse mortgage loan will pay off the traditional mortgage, if there still is one. Any remaining funds are typically provided in either a lump sum payment, in monthly payments, or as a line of credit. 

The amount of money that you are able to receive is based on the appraised value of the home, the age of the youngest reverse mortgage borrower, and the current interest rate. 

The loan funds can be used for any purpose and do not have to be repaid until the homeowner passes away, sells the home, or moves out. 

To learn more about how a reverse mortgage loan works, grab a free info kit here.

An Overview of the Upfront Reverse Mortgage Costs and Fees 

If you’re considering a reverse mortgage, it’s important to understand the upfront costs and fees associated with it.  

If you are unable to pay for these fees out of pocket, these costs can typically be rolled into the loan.  

Here are some of the common costs and fees you can expect to pay:  

• HUD-Approved Counseling: Before a homeowner can officially submit an application for a HECM reverse mortgage, they must first attend a counseling session with an approved third-party counselor from the U.S. Department of Housing and Urban Development (HUD). Counseling sessions typically range from $125 to $200, however the Consumer Financial Protection Bureau (CFPB) requires counselors to waive fees if the homeowner is unable to afford it and must explain all charges before counseling. 

• Origination Fees: Lenders charge homeowners an Origination Fee in order to initiate and process their reverse mortgage loan. This fee is determined using a formula provided by the Federal Housing Administration (FHA) which allows for up to 2% of the first $200,000 of the home’s market value, plus 1% of any remaining amount if the home is worth more than $200,000. Additionally, lenders are allowed to charge up to $2,500 for homes valued at $125,000 or less. The Origination Fee cannot exceed a total of $6,000.  
• Closing Costs: Closing Costs for a reverse mortgage typically include title fees, appraisal fees, credit checks, recording fees, document preparation costs, and courier charges. The specific fees will vary depending on state and local regulations as well as the lender that you choose to work with. Be sure to talk with your lender beforehand about what fees may be included in the loan agreement. 
• First Mortgage Insurance Premium: The first mortgage insurance premium is payable when your reverse mortgage loan is first originated. This annual fee protects you from potential losses and guarantees that you will receive the expected loan payouts. The premium also includes additional safeguards to ensure a secure process. 

How Reverse Mortgage Interest Rates Work 

Reverse mortgages rates come as both fixed and variable interest rates, also known as an adjustable rate, depending on how the money is disbursed to you. If your loan is taken out as a lump sum, you have the option of a fixed interest rate that will stay steady throughout the life of the loan.  

However, if any of your money is received as a line of credit or monthly payments, you are required to borrow at a variable rate.  

Variable rates tend to be lower interest rates than fixed rates at the start of the loan, and they come with a life cap that limits how much the rate can increase over time. The cap is usually either 5% or 10%, depending on whether you get a yearly variable (5% cap) or monthly variable (10% cap). Monthly variable rates are the most common and typically come with a lower starting rate. 

It’s important to note that interest is only charged on the funds that have been received.  

Interest on a reverse mortgage is calculated daily and added to the balance of the loan each month, but unlike other loans, interest payments are deferred until the end of the loan.  

The loan term for a reverse mortgage ends when: 

• The home is sold  
• It is no longer the primary residence of the homeowners  
• The borrowers pass away  

Ongoing Costs of a Reverse Mortgage 

In addition to the fees associated with securing a reverse mortgage, there are other ongoing costs that homeowners will need to continue to pay throughout the life of the loan: 

• Servicing Fees. Reverse mortgage service fees are set in accordance with FHA guidelines, which state that lenders may only charge a maximum of $35 per month. This fee is used to cover the costs incurred by the lender for disbursing payments, sending out monthly statements, and ensuring that the borrower properly maintains their home, pays property taxes, and maintains insurance. However, some lenders may waive this fee altogether.  
• Mortgage Insurance Premiums (MIP). MIPs are charged annually on HECM loans. The MIP is charged at a rate of .5%, so if you are charged a 4% interest rate, the total amount payable including the MIP will be 4.5%. 
• Homeowners Insurance. All borrowers are responsible for ensuring that they have adequate homeowner’s insurance. Depending on the location of your home, it may also be necessary to purchase additional flood insurance. 
• Taxes. Homeowners who obtain a reverse mortgage must ensure that their property taxes are up to date before taking out the loan, and they must continue to keep them current for the duration of the loan. 
• Maintenance Costs. When taking out a reverse mortgage, homeowners are still responsible for any repairs and other costs needed to keep the home in good condition.  

• Any Required Fees. Homeowners who are part of an association must factor in the cost of Homeowner’s Association (HOA) fees when considering a reverse mortgage. It is important to remember that these fees must continue to be paid even after taking out a reverse mortgage. 

Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.