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Using a Reverse Mortgage to Pay for Eldercare: What You Need to Know 

A reverse mortgage is a powerful financial tool that provides older homeowners with a way to convert their home equity into cash without having to take on additional monthly payments. This is important for retirees, as cash flow is a common challenge in retirement. 

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.  

Reverse Mortgage Requirements 

A reverse mortgage comes with the following very specific requirements that must be met in order to qualify for one:  

  • Age. At least one homeowner must be at least 62 years of age or older.  
  • Equity. You must have equity built up in your home. There is not a specific amount or percentage you must have to qualify. The amount you need will depend on the age of the borrower, the current interest rates, and the current market value of the home.  
  • Residency. The property must be the primary residence of the homeowner. This means that it cannot be used on a secondary home, vacation home, or an investment property. It also means that the homeowner must live in the home the majority of the year.  
  • Property Type. The home must be a single-family home, a two-to-four family unit in which the homeowners occupy one of the units, a townhome, an FHA approved condominium, or a HUD approved manufactured home.  
  • Home Condition. The property needs to be in good, maintained condition.  
  • Counseling. All prospective reverse mortgage borrowers must complete a counseling session with a third-party HUD approved counselor before filing the application for the reverse mortgage.  

Once homeowners obtain a reverse mortgage loan, they must continue to live in the home as their primary residence, they must continue to pay the property taxes, homeowners’ insurance, and any required fees such as HOA fees, and they must continue to maintain the home.  

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. 

Can a Reverse Mortgage be Used to Pay for Eldercare? 

Since there are no rules about how a reverse mortgage has to be used, that means that you can use it to pay for eldercare services.  

However, one thing you will want to keep in mind is the residency requirement for keeping your reverse mortgage. This requirement means that if the homeowners move out of the home for more than 12 consecutive months, the borrowers will no longer be able to keep the reverse mortgage loan, and they will have to pay it back.  

These are the scenarios in which you can keep a reverse mortgage while receiving eldercare services: 

  • In home care. If you or your spouse are receiving care in the home, then the reverse mortgage will not be at risk.  
  • Temporary stay. If you or your spouse sustains an injury or another health condition that requires a temporary stay at a nursing home facility for rehab services that is fewer than 12 months, you will be able to keep your reverse mortgage.  
  • One borrower at home. As long as there is one borrower that remains in the home full-time while the other borrower is in a nursing home for longer than 12 months, then the reverse mortgage will not be in jeopardy.  

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. 

When Does it Make Sense to Use a Reverse Mortgage for Eldercare? 

A reverse mortgage can help pay for eldercare services as long as the care you are receiving is in the home or in an assisted living facility for no longer than 12 consecutive months.  

Can You Use a Reverse Mortgage to Pay Family Members for Their Assistance?  

It’s not uncommon for seniors to rely on loved ones for assistance in retirement. If you are looking for a way to pay a family member for the help they provide, a reverse mortgage could help cover those costs as long as you remain living in the home as your primary residence.  

However, if you wanted to move in with a family member, you will not be able to keep the reverse mortgage.  

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. 

How Much Can I Get From a Reverse Mortgage?

A reverse mortgage can be used as a powerful retirement tool to supplement income, offset costs, fund major projects, or for simply beefing up retirement savings.  

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. 

How Much Can I Get From a Reverse Mortgage? 

reverse mortgage as part of your nest egg

The amount of money reverse mortgage borrowers can receive from a reverse mortgage loan is based on a variety of factors. But the most important formula to understand is what is known as the principal limit, so that is where we will start.  

This principal limit is derived from taking into account several key factors: the age of the youngest borrower, the expected interest rate, and the maximum claim amount.  

Through this calculation, lenders assess the potential borrowing power of individuals considering a reverse mortgage. 

We will go into each of these factors plus others that can affect how much you will be able to receive from a reverse mortgage. 

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.  

Use a Reverse Mortgage Calculator 

reverse mortgage cost and fees calculator

If you want to get an estimate of actual numbers you may qualify to obtain with a reverse mortgage loan, check out our reverse mortgage calculator.  

Talk to a Reverse Mortgage Specialist 

The best way to get the most accurate and realistic idea of what you might be able to obtain from a reverse mortgage loan is to talk to one of our experienced reverse mortgage specialists.  

Reach out by filling out the form or calling the phone number on this page. Or find a loan officer in your area through our loan officer directory.  

Bottom Line 

A reverse mortgage can be a valuable financial tool for retirees to enhance their financial situation and meet various needs during their retirement years. By leveraging the equity in their homes, senior homeowners can access funds without having to make monthly mortgage payments.  

The amount of money available through a reverse mortgage is influenced by several factors such as the age of the borrower, the home’s value, the lending limits set by the FHA, and the chosen distribution type.  

Ultimately, it is essential to consult with a reverse mortgage specialist to obtain accurate information tailored to your specific circumstances. These specialists can provide guidance, answer your questions, and help you make informed decisions about your retirement planning. 

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. 

What Is a Jumbo Reverse Mortgage and Who Should Get One?

If you’re a homeowner considering a reverse mortgage, you may have come across the term “jumbo reverse mortgage.” But what exactly is it and is this something you should consider?  

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.  

FAQs 

Who Owns the Home with a Jumbo Reverse Mortgage? 

One myth about reverse mortgages and jumbo reverse mortgages is that the bank owns the home or is buying the home from the homeowner. This is not the case.  

A home with a jumbo reverse mortgage still belongs to the homeowners, which is why borrowers are still required to pay the property taxes, homeowners insurance, and maintain the home.  

Is Money from a Jumbo Reverse Mortgage Taxable? 

Because the money received from a jumbo reverse mortgage is a loan, it is not considered income. Therefore, it is not taxable.  

Can You Get a Line of Credit with a Jumbo Reverse Mortgage? 

Yes, you can get a line of credit with a jumbo reverse mortgage, but not all lenders offer a line of credit option with jumbo loans. If you know you want a line of credit, you will want to shop around until you find a lender that offers one.  

What Is the Difference Between a Proprietary Reverse Mortgage and a Jumbo Reverse Mortgage? 

A jumbo reverse mortgage is a proprietary reverse mortgage. Jumbo reverse mortgages are considered proprietary because they are private loans offered by private lenders that are not insured by the federal government like traditional reverse mortgages. Rather, they are insured by the individual lenders that offer them, which means they are proprietary to those lenders.  

Will a Jumbo Reverse Mortgage Affect My Social Security Benefits? 

Reverse mortgage funds have no impact on Social Security benefits. This is because Social Security is not a “needs-based” program. The same goes for Medicare. That being said, it could affect someone’s access to a program like Medicaid or disability benefits.  

What Can Jumbo Reverse Mortgage Funds be Used for? 

There are no rules about how the funds from a jumbo reverse mortgage can or can’t be used. Common uses include supplementing income, paying off credit card debt, and making major home renovations.  

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. 

What is a HECM for Purchase?

Are you considering a reverse mortgage but would like to relocate or downsize? A reverse mortgage is typically considered an option for those who wish to retire is place, but if you are wanting to relocate in your retirement, you may still be eligible for this option.  

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? 

What is a Reverse Mortgage? 

Let’s start with the basics of a reverse mortgage. The most common type of reverse mortgage is the home equity conversion mortgage (HECM), which is insured by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD). 

A HECM reverse mortgage works by converting a portion of the home’s equity into cash. The borrowers receive money from the equity they’ve built up in their homes.  

To qualify for a reverse mortgage loan, homeowners must be 62 years of age or older and have significant equity in the home. Additionally, the home must be the primary residence of the homeowners, meaning they live in the home for most of the year. Vacation homes, secondary homes, and investment properties cannot be used for a reverse mortgage. 

Qualifying properties include single-family homes, two-to-four-unit properties in which the homeowners occupy one of the units, condominiums, townhouses, and some manufactured homes.  

The first thing a HECM loan will do is pay off your current mortgage, if you still have one. For the remaining loan proceeds, homeowners can choose to receive their funds as a lump sum, fixed monthly payments, a line of credit, or any combination of the three. 

The amount of money homeowners can receive is based on the home’s value, the age of the youngest borrower, and the current interest rates. Reverse mortgages come with both fixed rate and adjustable-rate options.  

One of the perks of a reverse mortgage is that it does not require monthly payments to pay it back. This makes it appealing to those in retirement who are looking for a way to supplement their income or save for unplanned expenses. There are no rules about how the money may be used, giving borrowers a lot of options. 

A reverse mortgage is paid back when the home is sold, it is no longer the primary residence of the borrower, or when the last borrower or qualified non-borrower passes away, in which case the home is typically sold. 

What is a HECM for Purchase? 

A HECM for Purchase is a financing option that allows home buyers to use a reverse mortgage to pay for up to half of the total sale price of a new home. This means that homeowners can complete both a reverse mortgage and a new home purchase with a single transaction and one set of closing costs. 

Similar to a traditional reverse mortgage, borrowers are not required to make monthly mortgage payments on the portion financed by the reverse mortgage as long as they live in the home. However, they must still meet the reverse mortgage loan obligations, which include paying property taxes, homeowners’ insurance, maintenance costs, and any required fees such as HOA fees.  

There are no prepayment penalties, so borrowers are allowed to pay down the loan ahead of time or make interest payments if they wish. 

The loan balance will become due when the home is sold, vacated for more than a year, or when the last remaining borrower passes away. If the borrower remains in the home until passing away, their children will have the option to sell the home and keep any proceeds or keep the home and pay off the loan.  

It’s important to note that the HECM for Purchase is a non-recourse loan, meaning that neither the borrower nor their heirs will ever owe more than the home is worth.  

The HECM for Purchase program was created by the U.S. Department of Housing and Urban Development (HUD) in 2009 to simplify the process of purchasing a new home with a reverse mortgage.  

Before this program was implemented, borrowers would have to apply for two mortgages and pay closing costs twice, which was a hassle and expensive.  

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.

The HECM for Purchase Process 

Before moving forward with a HECM for Purchase, you will need to sell your current home so you can use the proceeds for the down payment on your new purchase. 

During this time, you will also start to shop for the new home you wish to purchase. Your loan officer will help you understand how much you can afford. Once you find the right home, you will purchase it with the proceeds from the sale of your previous home.  

Depending on your age, interest rates, and other factors, you will need to put down 50% to 60% of the purchase price. The remaining balance will be financed by the reverse mortgage. 

The HECM for Purchase process is not fast and can take six months or longer from start to finish.  

It’s also important to note that all borrowers must complete a counseling session with a third-party counselor approved by HUD before filing a reverse mortgage loan application. Your HECM for Purchase loan officer will help connect you with qualified counselors.  

HECM for Purchase Example   

For illustrative purposes, let’s consider a fictional scenario with a couple from Illinois who have decided to move to Florida. Their reasons for relocating are to enjoy warmer weather and to be closer to their children.  

If they opt to use a HECM for Purchase program, they will have various options available to them, regardless of whether they choose to downsize or upsize. 

Downside vs. Upsize?DownsizeUpsize
Cash after sale of home$500,000  $500,000  
Purchase price of new home  $400,000$700,000
Down payment required to purchase new home  $236,000$405,500
Amount financed by Reverse Mortgage  $164,000$294,500  
Cash remaining$264,000$94,500

Please note that the specific figures may differ based on various factors such as the purchase price of the home, the age of the borrowers, interest rates, and other relevant considerations. 

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. 

Conclusion: Is a HECM for Purchase Right for You? 

A HECM for Purchase is a good option for those looking to relocate, downsize, or upsize in retirement. It allows homeowners to finance part of their new home purchase with a reverse mortgage loan and eliminates the need for monthly mortgage payments.  

The HECM for Purchase program offers several advantages over traditional financing options, including reduced monthly costs, the ability to keep more of the nest egg, increasing monthly cash flow, and the opportunity to qualify for a nicer home than they might without it, or the opportunity move into a home that’s a better fit for them. 

If you are interested in pursuing a HECM for Purchase, connect with one of our HECM for Purchase specialists and start exploring your options today. 

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. 

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What Can a Reverse Mortgage Be Used For? 

As older homeowners approach retirement, financial stability and consistent cash flow becomes a top priority. Many retirees seek innovative ways to supplement their income, cover unexpected expenses, or achieve their desired quality of life.  

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 is a Reverse Mortgage and How Does it Work? 

Before discussing what a reverse mortgage can be used for, let’s first define what a reverse mortgage is.  

A Home Equity Conversion Mortgage (HECM) is a loan that is exclusively available to homeowners aged 62 years or older who have equity built up in their homes. The home must also serve as the primary residence of the homeowners, and it cannot be utilized for acquiring a vacation property or an investment asset. 

A HECM reverse mortgage is similar to other loans such as a regular mortgage, a home equity loan, or a home equity line of credit (HELOC) with some significant differences. 

This financial tool offers homeowners an opportunity to access their home equity without assuming additional monthly mortgage payments. When obtaining a reverse mortgage, older homeowners are able to pay off their existing mortgage, if applicable, and alleviate themselves from the associated monthly payments. 

It is important to note when obtaining a reverse mortgage, the property remains in the possession of the borrowers, not the lender. This means that homeowners are still responsible for fulfilling the obligations of homeownership such as paying property taxes, homeowner’s insurance premiums, and keeping the home in good, maintained condition. 

For any remaining equity leftover after the traditional mortgage is paid off, borrowers can choose from various options for receiving their funds. They can opt for a lump sum payment, monthly installments, a line of credit, or a combination of these options. 

The reverse mortgage loan balance is paid back when the homeowner decides to sell the property, when the home ceases to be their primary residence, or in the unfortunate event of the homeowner’s passing. 

A HECM reverse mortgage is backed by the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). 

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. 

What Can Reverse Mortgage Funds be Used for? 

There are no restrictions on how homeowners may use the money acquired through a reverse mortgage. The funds can be used according to the homeowners’ preferences and needs.  

Below are some of the common purposes that homeowners use a reverse mortgage for.  

Supplement Retirement Income 

One of the most common uses of a reverse mortgage is to supplement monthly income. This may be necessary if you find that your pension or Social Security benefits aren’t cutting it.  

A reverse mortgage helps free up monthly income in two ways. First, it helps by eliminating monthly mortgage payments. Second, it helps by giving homeowners additional money coming in each month 

Make Home Renovations 

A reverse mortgage is an option for those looking to make major home renovations or home repairs. This may be especially necessary for those who have lived in their home for years and have significant home improvements that need to be made. This may also be necessary for those who have physical limitations, and they want to make it more accessible.  

Since a reverse mortgage allows homeowners to tap into the equity they have built in their homes over the years, it typically provides them with a substantial sum of money to fund such projects.  

By using a reverse mortgage, individuals can transform their property into their dream home without straining their current budget. 

Pay Off Credit Card Debt or Personal Loans 

Using reverse mortgage proceeds to pay off credit card debt can offer a practical solution for individuals burdened by large amounts of consumer debt going into retirement.   

A reverse mortgage offers the advantage of not requiring immediate repayment, as the loan is typically repaid when the homeowner sells the property or passes away. 

This deferred payment structure can provide much-needed financial relief and allow individuals to focus on improving their overall financial health.  

Cover Healthcare Costs 

A reverse mortgage can be used to pay off medical bills. But it can also be used to pay for future medical expenses that can be pricey such as home health care.  

If you have large medical bills to pay off, you will want to receive at least some of your funds as a lump sum. If you are looking to use a reverse mortgage to cover future medical expenses, you will want to choose to receive your funds as a line of credit.  

Travel  

If you have traveling aspirations for your retirement, the funds from a reverse mortgage can be used to help cover these costs.  

As a Retirement Tool 

If you are heading into retirement, and you don’t think you have enough saved in your retirement accounts to last through retirement, a reverse mortgage may help.  

A federal survey found that most Americans in the years leading up to retirement don’t have enough money to retire on even when combined with Social Security benefits.  

While a reverse mortgage used to be considered as an option for older homeowners who were in a desperate financial situation, experts are now recommending that a HECM loan can be used as an important financial tool in someone’s retirement plan.  

“Financial planning research has shown that coordinated use of a reverse mortgage starting earlier in retirement outperforms waiting to open a reverse mortgage as a last resort option once all else has failed,” retirement income expert Dr. Wade Pfau explained.   

For example, a reverse mortgage can increase cash flow, which is typically a top concern of retirees.  

In the event of a declining market during retirement, retirees can rely on a reverse mortgage to provide them with financial support while they wait for the market to recover.  

Purchase a New Home 

Additionally, it is worth mentioning that a reverse mortgage can even be employed to purchase a new home, a concept known as a reverse mortgage for purchase or HECM for purchase. 

When purchasing a home, the usual options are to either pay cash or make a down payment and finance the rest through a traditional mortgage, requiring monthly payments to pay off the loan.  

A HECM for purchase provides a third option. With this program, borrowers typically put around 50% down and use a HECM loan to cover the remaining balance.  

Unlike a traditional reverse mortgage that provides cash in various forms, the HECM for purchase allows borrowers to use the funds specifically for buying a home, with any remaining money going to the borrower. 

If you want to learn more about how this works, we recommend talking to one of our HECM for purchase experts who will be able to answer all of your questions. 

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. 

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Is a Reverse Mortgage a Good Idea?

There’s a lot of conflicting information out there about reverse mortgages. You don’t have to look very far before you run into warnings about “reverse mortgage scams” that may lead you to believe that a reverse mortgage is a financial product you should avoid.  

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.  

What is a Reverse Mortgage? 

Before discussing whether or not a reverse mortgage is a good idea, we first need to know what it is.  

A HECM reverse mortgage loan is only available to homeowners who are 62 years of age or older and have significant equity in their homes. The home must also be the primary residence of the homeowners. Reverse mortgages cannot be obtained for a vacation home or investment property. 

It provides a way for homeowners to tap into their equity without having to take on additional monthly mortgage payments. When a homeowner takes out a reverse mortgage, it pays off the current mortgage, if there is one, and eliminates the monthly payments that go with it.  

The home still belongs to the borrowers, not the bank, which means that homeowners are still required to pay property taxes, homeowner’s insurance, and maintain the home. 

For any remaining equity, borrowers have the option of receiving their funds as a lump sum, monthly payments, a line of credit, or a combination of the three.  

There are no limitations on how the money can or can’t be used. The money that homeowners receive can be used however they would like. Some common uses of reverse mortgage funds include supplementing monthly income, funding major home projects such as home upgrades and renovations, paying off credit card debt and personal loans, and as a backup source of funds to cover unplanned expenses.   

A reverse mortgage may also be used to purchase a new home, this is known as a reverse mortgage for purchase or HECM for Purchase.  

A reverse mortgage is paid back when the homeowner decides to sell, the home is no longer the primary residence of the homeowner, or when the homeowner passes away.  

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.  

When a Reverse Mortgage is Not a Good Idea 

While there are times in which a reverse mortgage is a good idea, this is not the case for everyone. 

Here are some situations in which a reverse mortgage may not be the right choice:  

  • If you plan to move. While a reverse mortgage can be used to purchase a new home, a reverse mortgage may not be the best way to go if you plan to move.  
  • If you want to leave your home to your children. Because a reverse mortgage uses up a large portion of your equity, it may make it more difficult for your children or heirs to keep your home after you pass away. After you pass, your heirs will be given the option to sell the home and keep the proceeds or keep the home. But if they keep the home, they will need to pay the balance of the loan or 95% of the appraised value.  
  • If you can’t afford to maintain the home and other costs. As explained before, in order to have a reverse mortgage, you will still be required to continue to pay the property taxes, the homeowner’s insurance, any dues such as HOA fees, and pay to maintain the home. While a reverse mortgage can offset these costs, if you think you will struggle to cover these costs, then a reverse mortgage may not be the way to go. Most reverse mortgage lenders will assess your financial health to make sure you are able to meet all reverse mortgage requirements before moving forward with the application.  

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. 

The Bottom Line 

Taking out a reverse mortgage loan is a major decision. Since it’s not available to homeowners until they are 62 years old, most of us don’t have a lot of experience with how the process works or how to get started.  

That’s why we aim to provide in-depth information about reverse mortgages.

If you want to learn more, grab our free reverse mortgage guide here, or go here to find a reverse mortgage specialist 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. 

Reverse Mortgage vs. Selling Your Home: How to Choose?

While retirement is a very optimistic time of life, it also requires that you make several major decisions, and one of the biggest decisions is where you are going to live.  

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.  

Understanding a Reverse Mortgage: What It Is and How It Works 

The Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage. It is insured by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD).  

A HECM reverse mortgage is a unique financial product specifically designed for older homeowners aged 62 and over. It’s a loan just like a traditional mortgage loan, but how a reverse mortgage works is very different. 

With a reverse mortgage loan, homeowners borrow against their home’s equity, but they are not required to make monthly mortgage payments on the money they receive.  

The lack of monthly mortgage payments that typically come with a regular mortgage is one of the ways a reverse mortgage helps to free up cash. 

The money from a reverse mortgage will first pay off the existing mortgage, if there still is one. For the remaining cash, homeowners can receive the funds in the form of a lump sum, monthly payments, a line of credit, or combine those options.  

With HECM loans, there are no restrictions on how the money may be used, and how you decide to have your funds disbursed will be based on your needs. 

For example, receiving your funds as a lump sum may be the best option if you have major home renovations that you need done. Monthly payments may be the best option for you, if your primary need is to supplement your monthly income. If what you’re looking for is to increase your emergency savings, then a line of credit may be ideal. 

The amount of money you receive will be based on three main factors: your age, your home’s appraised value, and the interest rates. The current FHA lending limit is $1,089,300.  

However, for homes that are worth more than that, most major reverse mortgage lenders offer proprietary reverse mortgages also known as jumbo loans. At Mutual of Omaha Mortgage, we offer the HomeSafe reverse mortgage, which allows homeowners to borrow up to $4 million. 

The loan is repaid or becomes due when a maturity event takes place such as when the homeowner sells the home, no longer lives in the home full-time, or passes away. A reverse mortgage is a non-recourse loan, which means that you will never owe more than the home’s value. 

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.  

Selling Your Home: Is it a Good Idea? 

An alternative way to receive your home’s equity is to put it up for sale and keep the profits. 

After selling, you can opt to rent or move in with family members (if that is an option for you) or relocate to a community where there are homes in communities where the upkeep is included. 

If you are looking for a way to retire without the burden of homeownership, this might be an ideal solution. If you decide to obtain a reverse mortgage, you will still need to pay property taxes, homeowners insurance premiums, keep up with home maintenance, and pay any HOA fees, if there are any. 

Selling your home could be a great idea if you are seeking to significantly reduce your living space or move to an area where housing costs are much lower than what you pay now. If the value of your home is high enough, then you may be able to generate enough funds from the sale that would enable you to purchase a new residence with cash, free of any mortgage obligations. 

However, it is important to remember that even if you sell your home, you do have to live somewhere, so you will want to weigh the costs.  

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. 

What to Do Next 

If you decide that you want to sell your home, your next step will be to reach out to a real estate agent to help you with your home sale. 

If you decide that you want to pursue a reverse mortgage, your next step is to talk to a reverse mortgage lender.  

Go here to download a free reverse mortgage guide or go here to find a reverse mortgage specialist from Mutual of Omaha Mortgage.  

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. 

Reverse Mortgage vs HELOC: Which is the Best Option for Accessing Equity?

Purchasing a home is one of the best investments you can make, and as the value of your home increases, you have an opportunity to utilize that growing wealth without having to sell the home.

Two popular options for accessing that equity are a reverse mortgage and a Home Equity Line of Credit (HELOC).  

But which one is right for you? In this article, we explore what these two products are, how they work, and the scenarios in which one may be a better choice than the other. 

What is a Reverse Mortgage? 

A reverse mortgage is a type of loan that differs significantly from a traditional mortgage. 

A Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage, is a loan option designed to help homeowners convert their home equity into cash. When taking out a HECM reverse mortgage, any existing mortgages will be paid off in full, so you no longer need to make regular monthly payments on your original loan. 

A reverse mortgage enables homeowners to convert the remaining equity into cash. There are several ways to receive the funds, such as a lump sum, monthly payments, or a line of credit. Alternatively, you can opt for a combination of these options. 

A reverse mortgage loan is paid back when the home is sold, when the home is no longer used as the primary residence of the homeowner, or when the last homeowner passes away. 

Reverse Mortgage Requirements 

In order to qualify for a reverse mortgage, you must meet certain criteria, including the following: 

  • Applicants must be at least 62 years of age or older  
  • The home must have significant equity  
  • The property needs to be in good condition  

Before homeowners may officially apply for a reverse mortgage, they must first complete a counseling session with an approved counselor from the U.S. Department of Housing and Urban Development (HUD). This counseling session helps to ensure that homeowners understand all the risks and benefits involved with a reverse mortgage and can make an informed decision. 

After the reverse mortgage loan closes and you start receiving your funds, borrowers must continue to maintain the home, pay the necessary property taxes, homeowners insurance, and pay any other required fees, such as HOA fees. 

Learn more about the reverse mortgage requirements by checking out this FREE reverse mortgage information kit.

Reasons to Choose a Reverse Mortgage 

One of the reasons a reverse mortgage is such an attractive option is the flexibility it offers. Unlike other financial products, there is not a single way to receive funds from a reverse mortgage. Instead, there are various options available. 

Here are some examples of how a reverse mortgage can be used: 

  • In Your Retirement Portfolio. If you’re nearing or already in retirement and lack the necessary savings to maintain your desired lifestyle, but happen to own your home, a reverse mortgage may be worth considering as part of your retirement portfolio. 
  • Unplanned Expenses. If you don’t have adequate funds for emergency expenses, you may consider taking out a reverse mortgage and receiving the proceeds as a line of credit. This will ensure that your funds are available should an unexpected expense arise. 
  • Supplement a Fixed Income. If you are living on a fixed income, then a reverse mortgage can provide additional monthly income. With a reverse mortgage loan, you have the option of choosing to receive the funds in the form of monthly payments which can help make ends meet. 
  • Upgrade Your Home. A reverse mortgage could help you make major renovations to your home to serve you better in retirement if you don’t have the savings to cover the costs. Furthermore, these upgrades can also potentially increase the value of your home. Receiving a lump sum from a reverse mortgage could provide much-needed financial assistance for such projects. 
  • Travel. If you’ve taken care of all your monthly expenses, updated your home to create a comfortable living environment, and saved up an emergency fund, you can use the extra funds from a reverse mortgage to travel more often and visit friends and family. 

If you’re considering a reverse mortgage, it’s important to be aware that the loan process can take up to 45 days before your funds are received. Therefore, if you decide this is the right option for you, it may be prudent to move forward as soon as possible. 

If you decide that a reverse mortgage isn’t the right choice for you, you can cancel your loan at any time — even up to three days after closing. 

What is a Home Equity Line of Credit? 

A Home Equity Line of Credit (HELOC) is a type of loan that works similar to a credit card. Borrowers can access funds up to a predetermined limit and pay them back with interest. Funds can be repaid and borrowed multiple times from the same account. 

A HELOC is a second mortgage, and your home is used as collateral for the funds. It’s important to be aware that if payments are not kept up, foreclosure of the property could result. 

HELOCs typically come with a variable interest rate. The credit limit that a homeowner is eligible for depends on the amount of equity they have in their home. However, lenders can vary in how much they are willing to loan out. The amount of money that can be borrowed is set by the lender and will usually vary from 50-80% of the appraised value. 

HELOC borrowers are able to access the funds allocated to them by either using a credit card or checks linked to their HELOC account. In most circumstances, the draw period of a HELOC lasts for 10 years. 

Homeowners are responsible for making monthly interest payments on the money borrowed from the HELOC. Interest is only incurred on the funds that are used. 

After the 10-year draw period is complete, borrowers must begin repaying the outstanding balance. Typically, this repayment period lasts for 10 to 20 years but homeowners may also start repaying the principal balance before the full 10-year draw period is over. 

A HELOC is a flexible and convenient borrowing option that can be used for a variety of purposes, such as paying for home improvements, paying off debt, paying for college, or paying for unplanned expenses. 

HELOC Requirements: How You Qualify 

A HELOC is more accessible than a reverse mortgage since it does not have an age requirement. However, homeowners must still meet certain qualifications in order to qualify for this type of loan. 

The exact requirements and terms can differ between lenders. However, here are the minimum requirements you will likely need to meet: 

  • Equity. A HELOC typically requires a minimum of 15% equity in the home, though 20% is preferred. This value will be determined through an appraisal during the application process.  Ensuring sufficient equity is important to establishing the amount available for a HELOC loan. 
  • Debt-to-Income Ratio. A HELOC typically requires a debt-to-income ratio of 50% or less. This ratio is calculated by adding together your total monthly debt payments, then dividing that amount by your monthly income. 
  • Credit Score. To qualify for the best HELOC rates, it is recommended to have a credit score of 720 or more. A minimum credit score of 620 may still be accepted, but higher scores will likely result in better terms and conditions. 
  • Payment History. Having a track record of timely payments can raise your chances of being approved for a HELOC. 

Reasons to Choose a HELOC 

A HELOC is an ideal option for homeowners who require financial flexibility over a specified period and can make timely interest payments. 

It is an excellent choice for homeowners who anticipate needing to make multiple withdrawals over time to cover a range of projects or expenses. Its flexibility makes it well suited to those who aren’t sure how much they will need in order to reach their goals. 

However, borrowers must also consider their ability to repay the HELOC once the draw period has ended. 

How to Decide Between a Reverse Mortgage and a HELOC 

If you are eligible for both a reverse mortgage and a Home Equity Line of Credit (HELOC), the decision between which option to choose ultimately depends on what your specific needs in addition to your financial situation. The best option will depend on what kind of financial flexibility, repayment terms, and loan features you require. 

If you need a line of credit and have the means to pay the interest payments and repay the loan before the end of its draw period, then a Home Equity Line of Credit (HELOC) may be your ideal solution. 

If you are looking to access your home equity and monthly mortgage payments will make it easier for you to meet your financial obligations, then a reverse mortgage may be the ideal option for you. 

Want to learn more about how a reverse mortgage works? Grab our free reverse mortgage guide here.  

Want to talk to a reverse mortgage specialist in your area? Find a reverse mortgage advisor here.

Related Articles:

Reverse Mortgage vs. Selling Your Home: How to Choose?

Is a Reverse Mortgage a Good Idea?

Record Inflation is Taking Aim at Retirement Plans as Retirees Explore Options

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. 

What You Need to Know About Reverse Mortgage Interest Rates and Fees

A Home Equity Conversion Mortgage (HECM), more commonly referred to as a reverse mortgage, provides a way for homeowners aged 62 and over to access the equity they have built up in their home without having to take on any additional monthly payments.  

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. 

Conclusion: Understanding the Costs and Fees of a Reverse Mortgage 

A reverse mortgage loan can help you access the equity in your home, but it’s important to understand all the fees and costs associated with it.  

One way to keep your costs as low as possible is to consider receiving your funds as a line of credit so that you only have to pay interest on the funds that you use. If you are interested in a fixed-rate reverse mortgage, you will want to opt to receive your loan proceeds as a lump sum payment.  

We always recommend that you discuss your decision with your financial advisor and any family members who may be affected by it. 

Please reach out to one of our reverse mortgage specialists if you have any questions or would like more information. We’re here to help! 

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.