Reverse Mortgage

It used to be that if you were age 62 or older, there were only two ways to get cash out of your home. You could sell it or you could borrow against your home equity. But now, with reverse mortgages, seniors can tap into the home equity they’ve built up without moving or taking on extra debt.

If you’re just starting out and want to learn more about reverse mortgages, we recommend you read Fannie Mae’s brochures and fact sheets that describe each product. The Fannie Mae’s Find a Counselor Search can help you locate a reverse mortgage counselor in your area.

If you already know a reverse mortgage is for you, Fannie Mae’s publication, Money from Home: A Consumer’s Guide to Reverse Mortgage Options (PDF), is a required counseling tool and an excellent source of in-depth information on reverse mortgages for homeowners ready to apply. The guide contains detailed information on the Home Keeper Reverse Mortgage and the U.S. Department of Housing and Urban Development-insured Home Equity Conversion Reverse Mortgage (HECM). The publication also has information to help you determine what type of reverse mortgage is right for you, and worksheets to help you get started.

After deciding to apply for a reverse mortgage, you should speak to a FreeLoanComparison.com lender partner and request an application form. FreeLoanComparison.com can help you find lenders who offer the Home Keeper Reverse Mortgage and the FHA Home Equity Conversion Reverse Mortgage (HECM).

FreeLoanComparison.com does not lend money directly to consumers. Instead, we work with mortgage lenders to make sure they have money to lend. Lenders who work with FreeLoanComparison.com have a broad array of reverse mortgages to offer consumers.

Understanding Reverse Mortgages for Seniors

Unlike a traditional mortgage that you pay back each month, a reverse mortgage makes payments to you. You can get these payments in a lump sum to cover an unexpected bill. You can get them as a regular supplement to your monthly income. Or, you can get them at intervals and amounts that are best for you.

FreeLoanComparison.com lender partners offer reverse mortgage loans that require no repayment as long as your home is your principal residence and you fulfill the borrower’s obligations, such as continuing to maintain the property and pay your property taxes and hazard insurance. You pay the money back plus interest and other charges when you sell or permanently move out of your home.

If you pass away, the loan is due, but the amount due will always be the lesser of your loan balance or the market value of your home. Even if the amount you borrowed eventually exceeds the value of your home, you or your heirs will never owe more than the value of your home. All proceeds in excess of what you owe belong to your estate, which means the remaining equity in your home can be passed on to your heirs.

Unlike the loan balance of a conventional mortgage, which becomes smaller with each monthly payment, the loan balance of a reverse mortgage grows larger over time.

As you receive your payments, the amount of cash you have left after selling and paying off the loan -- your equity -- generally grows smaller. But with a reverse mortgage you can never owe more than your home’s value at the time the loan is repaid.

If you own your home free and clear or if you have very little mortgage principal outstanding, a reverse mortgage may be a good option for you. FreeLoanComparison.com lender partners offer a variety of reverse mortgage products which provide an excellent vehicle for seniors to enjoy extra security and financial support.

Many seniors find reverse mortgages to be a valuable tool for overall financial planning. FreeLoanComparison.com lender partners also offers a reverse mortgage product that provides some of the funds for your purchase of a new home.

(Special rules and regulations apply in Texas. Consult a local FreeLoanComparison.com lender partner or non-profit reverse mortgage counselor for details.)

Qualifying for a Reverse Mortgage

Individual reverse mortgage products may have particular requirements. Here are a few basics that apply to Fannie Mae’s product and the U.S. Department of Housing and Urban Development’s (HUD) Home Equity Conversion Reverse Mortgage (HECM):

You and any co-borrower must be at least 62 years of age.
If you are applying for a Home Keeper Reverse Mortgage, you must occupy the home as your primary residence (where you live a majority of the year).
You must own your home free and clear or have a low mortgage balance.
You must attend pre-application reverse mortgage counseling before applying.

There are also other considerations that are generally applicable:

Lenders base the loan amount on three factors: the age of the borrower(s), the number of borrowers, and the adjusted property value for Home Keeper Reverse Mortgages or the maximum claim amount for the HECM.
The HECM contains a "growth" feature that lets any money in the line of credit grow on a monthly basis. If you do not anticipate needing a lump sum draw at closing, you should take this growth feature into consideration. While a HECM may offer less money in the line of credit than any other products, it could grow to exceed the money available in other reverse mortgages.
You can change payment options at any time over the life of the loan for a small fee.
No part of the loan is due until you no longer live in your home or if you violate the loan’s terms and conditions, at which time the full loan is due. You can prepay -- or partially repay -- the loan without a penalty.
You or your estate will never owe more than the value of the property.

Reverse Mortgage Solutions

Your options for a reverse mortgage include

Home Keeper Reverse Mortgage -- for seniors who want to stay in their homes. This is an adjustable-rate reverse mortgage product that lets you convert the equity in your home into a variety of flexible payment plans including monthly parments, a line of credit, a lump sum payment, or a combination of the three.
Home Keeper for Home Purchase Reverse Mortgage -- for seniors who want to purchase a new home. This is a variation of the Home Keeper loan that provides you some of the funds for the purchase of a new home, so you don’t have to dip too far into your savings or make monthly mortgage payments. This product is popular with seniors who want to downsize or find a home that better suits their needs.
The Home Equity Conversion Reverse Mortgage (HECM) -- a federally insured loan offered through the U.S. Department of Housing and Urban Development (HUD). These adjustable-rate loans are originated by the same lenders that offer Fannie Mae reverse mortgages.

Home Keeper Reverse Mortgage

Whether you need a lump sum to pay an unexpected hospital bill or a regular payment stream to supplement your monthly income, the Home Keeper Reverse Mortgage lets you borrow against the value of your home and receive loan proceeds according to a payment plan you select.

Unlike traditional mortgages or home equity loans, you don’t repay the loan until you no longer occupy the home as your principal residence.

Your lender bases your reverse mortgage amount -- otherwise known as your principal loan amount -- on three factors:

the age of the borrower(s),
the number of borrowers, and
the adjusted property value of your home.

In effect, the older you are, the larger the percentage of your home’s value you can borrow.

You can change payment options at any time over the life of the loan for a nominal fee. For example, you may not want to receive payments from your loan if your financial situation changes and you don’t need the money. Or, if you suddenly need additional funds, you can choose an unscheduled payment.

There are other options:

You can change the amount of your monthly payments.
You can switch from a monthly payment plan to a line of credit, or from a line of credit to a monthly payment.
You can add a line of credit to your loan.

You can make as many changes as you like, but you will probably be charged a fee for each one. If you stop taking your loan payments for a period of time, fees and interest will continue to accrue and will be added to your loan balance.

You must continue to maintain the property and pay property taxes and hazard insurance as well. No part of the loan is due until you no longer live in your home, at which time the full loan is due.

You or your estate will never owe more than the value of the property. If you move or sell your home, you must pay the accrued interest and the amount of any payments made to you.

Home Keeper Reverse Mortgage: Advantages

The Home Keeper Reverse Mortgage offers many advantages. For starters:

There are no income limits for the borrower(s).
You can select among three different payment plans, letting you choose the option that matches your cash flow needs.
Funds are yours to spend in any way you choose.
You make no monthly loan payments.
Funds do not affect Social Security or Medicare benefits. (If you receive Supplemental Security Income or Medicaid, these benefits may be affected because they are based on need.)
No part of the loan is due until you no longer live in your home, at which time the full loan is due.
You will never owe more than the value of the home at the time of repayment, even if the loan balance exceeds the value of your property. This means no debt will be passed along to your heirs.

Home Keeper Reverse Mortgage: Requirements

To be eligible for the Home Keeper Reverse Mortgage

You must be at least 62 years old.
You must own your home free and clear or have a very low mortgage balance.
You must occupy the property as your primary residence.
You must keep applicable taxes current, as well as maintain insurance on your home. You may have to pay off the reverse mortgage if you fail to pay property taxes and insurance or if you do not maintain your property.
You cannot have more than three co-borrowers apply for a single loan.
Your property must either be a one-unit, single-family home; a condominium; or a unit in a planned-unit development. A property held in trust or a leasehold property that meets Fannie Mae guidelines is also eligible.
You must attend reverse mortgage counseling that explains this financing option.

Home Keeper for Home Purchase

If you currently own your home free and clear of any mortgage debt, the Home Keeper for Home Purchase Reverse Mortgage helps you buy a new house that better fits your needs. You make a small down payment with your own money and receive a Home Keeper for Home Purchase loan for the rest of the purchase price.

The amount of money you get from a Home Keeper for Home Purchase Reverse Mortgage depends on

your age,
the number of borrowers, and
the appraised value of your home.

The amount of your down payment depends on your age. The older you are the smaller your down payment needs to be. At age 62, for example, 70 percent of the cost of your home comes from your own personal funds. At age 90, you are responsible for only 30 percent.

There are no income or credit requirements with a Home Keeper for Home Purchase reverse mortgage.

Home Keeper for Home Purchase: Advantages

The Home Keeper for Home Purchase Reverse Mortgage offers many advantages. For starters:

You may qualify for a higher-priced home because there are no income limits and no credit limit requirements. Loan qualification is based on your age and the value of the home you want to buy.
You can lower your down payment and keep more of your cash by choosing to use all or part of the loan proceeds toward your home purchase.
Repayment is not due as long as you occupy the home, maintain it, and pay property taxes and hazard insurance.
There are no monthly payments.
Funds do not affect Social Security or Medicare benefits. (If you receive Supplemental Security Income or Medicaid, these benefits may be affected because they are based on need.)
You do not pay back the loan until you sell your home, no longer use it for your primary residence, or pass away. Then, you or your estate will repay the cash you received from the Home Keeper for Home Purchase Reverse Mortgage, plus interest, and other finance charges to the lender. This means that any remaining equity in your home can be passed on to your heirs through the sale of the property. In any event, you will never owe more than the value of the home at the time of repayment, even if the loan balance exceeds the value of your property. This means no debt will be passed along to your heirs.

Home Keeper for Home Purchase: Requirements

To be eligible for the Home Keeper for Home Purchase Reverse Mortgage

You must be at least 62 years old.
You must have the required funds for a down payment. This money can come from your savings, investments, or the sale of your current home.
At the loan closing, you will need to show that you have title insurance and that a title search has been performed.
You must keep applicable real estate taxes current, as well as maintain property insurance coverage on your home.
Your property must either be a one-unit, single-family home; a condominium; or a unit in a planned unit development. A property held in trust or leasehold properties that meet Fannie Mae guidelines are also eligible.
You must attend reverse mortgage counseling that explains your financing options.

Home Equity Conversion Reverse Mortgage

A Home Equity Conversion Reverse Mortgage (HECM) is a type of home loan insured by the federal government that lets homeowners age 62 or over with little or no remaining balance on their mortgage convert their equity into cash.

The equity can be paid to the homeowner in a lump sum, in a stream of payments, as draws from a line of credit, or a combination of monthly payments and line of credit.

Whatever payment plan you select, you do not have to repay any part of this reverse mortgage until you sell the home, vacate it for another reason, or if you violate the loan’s terms and conditions. At that time, you pay the loan balance, plus any accrued interest. Any proceeds above that amount go to you or your estate.

Developed by the Federal Housing Administration (FHA), the HECM provides a cash growth feature not found with some other reverse mortgages. Check with a FreeLoanComparison.com lender partner for details on how this option can fit with your personal needs and payment plan. All FreeLoanComparison.com lender partner who offer the Home Keeper Reverse Mortgages must also offer the U.S. Department of Housing and Urban Development’s (HUD) HECM product.

Home Equity Conversion Reverse Mortgage: Advantages

The Home Equity Conversion Reverse Mortgage (HECM) offers many advantages. For starters:

The funds are yours to spend in any way you choose.
There are no monthly loan payments.
Funds do not affect Social Security or Medicare benefits. (If you receive Supplemental Social Security or Medicaid, these benefits may be affected because they are based on need.)
You do not have to pay back the loan until you sell your home or no longer use it for your primary residence. Then, you or your estate will repay the cash you received from the HECM, plus interest and other finance charges to the lender. This means that any remaining equity in your home can be passed on to your heirs through the sale of the property.
You will never owe more than the value of the home at the time of repayment, even if the loan balance exceeds the value of your property. This means no debt will be passed along to your heirs.

Home Equity Conversion Reverse Mortgage: Requirements

To be eligible for a Home Equity Conversion Reverse Mortgage (HECM)

You and any co-borrowers must be at least 62 years old.
You must own your home free and clear or have a very low mortgage balance.
Eligible properties include single-family homes, two- to four-unit dwellings, condominiums, and manufactured homes. All housing types must meet Federal Housing Administration guidelines. (Ask your FreeLoanComparison.com lender partners if your property qualifies.)
Your home must be your principal residence, which means you must live in it more than half the year.
You must attend pre-application reverse mortgage counseling before you apply for the loan.
You must keep applicable taxes current, as well as maintain insurance coverage on your home.
The amount you can borrow depends on the age of the youngest borrower, the interest rate, how much your house is worth, and the maximum claim amount which is the lesser of the appraised value of your house or the maximum loan amount that can be insured by the FHA for residences in your geographical area. There are five possible HECM payment plans.
The balance of funds advanced against the equity in your home is due and payable when you relinquish your home as a primary residence, or if the borrower(s) passes away. You may have to pay off the debt if you fail to pay property taxes or insurance or if you do not maintain your property.

For more helpful mortgage tips on mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!

Last update: November 14, 2008