14 Important Reverse Mortgage Facts

Senior man filling out a reverse mortgage application
Casper1774 Studio / Shutterstock.com

This story originally appeared on NewRetirement.

Do you know your reverse mortgage facts? More and more people are becoming aware of reverse mortgages as an option for tapping their home’s equity.

Maybe you heard about these loans on a personal finance blog or from Tom Selleck on late-night TV. However, what is really true?

With all of the buzz about retirement financing options today, it can be difficult to sort out what to believe when the information you get is incomplete or sounds like marketing spin.

Are reverse mortgages safe? How does the government fit in? Can anyone get a reverse mortgage?

Here are reverse mortgage facts to know before using this type of loan to supplement your retirement income.

1. Reverse mortgages are available for many homeowners (over 62 years old)

Reverse mortgage
William Potter / Shutterstock.com

There are some restrictions on who can apply for a reverse mortgage. The primary borrower must be 62 years old and must have enough home equity to qualify.

There will also be a financial assessment to determine that the borrower is fit to uphold the requirements of the loan. Other than that, reverse mortgages are available for anyone who wants to tap their home’s equity without going through the process of taking out a traditional mortgage.

Reverse mortgages are used by many different types of households, from high net worth couples and individuals who are riding out market swings that are impacting their other investments to families that need additional monthly cash flow to help make ends meet.

There’s no one reason to take a reverse mortgage, and there’s no one person for whom the loan is the “right” option. To find out if you qualify for a reverse mortgage, you can get a free estimate or talk with a financial planner.

2. It’s just a loan: You continue to own your home with a reverse mortgage

A senior video chats on a laptop computer on his living room sofa
Roman Samborskyi / Shutterstock.com

Many people erroneously believe that the bank or the government owns your home when you get a reverse mortgage. A reverse mortgage is a loan, and reverse mortgage borrowers hold the title to their homes throughout the entire course of the loan.

The amount of your loan depends on factors including your age, the value of your home and current interest rates. If you know the value of your home, you can get a free estimate of the loan amount you may eligible for.

Once the loan becomes due because the borrower passes away or moves, the borrower or his or her heirs will be responsible for repaying the loan.

Often, this is done through the sale of the home, and, if the value of the loan is greater than the value of the house, the amount of the loan not paid by the sale of the house is paid by mortgage insurance. Reverse mortgage borrowers do not have to pay more than the value of the home when the loan comes due.

3. Your heirs have options

A young woman hugs her grandmother outdoors
Ocskay Mark / Shutterstock.com

Although it’s often the case that heirs sell the home to repay the reverse mortgage, that is not their only option on these loans. In the case where a borrower has passed away, heirs are entitled to pay off the reverse mortgage through whatever means they choose.

If they are able and wish to repay the loan with outside funds and keep the home, that’s up to them.

Many families would rather get a reverse mortgage than lose independence or compromise their quality of life.

4. It’s likely to reduce your net worth

A Hispanic senior smiles and holds his hands to his chin
Diego Cervo / Shutterstock.com

A reverse mortgage is a loan that allows a borrower to take from the home equity he or she has amassed over time. Once this money is spent, the home holds less value.

There is also interest that accrues and must be repaid when the loan comes due. Because of this, a reverse mortgage is likely to reduce your net worth.

5. Reverse mortgages are getting more popular

Hand lifting small model home, revealing cash.
Narong Jongsirikul / Shutterstock.com

Three trends are making reverse mortgages more popular than ever before:

  1. Americans have not saved enough.
  2. Housing prices are at all-time highs.
  3. The federal Home Equity Conversion Mortgage program has had many recent modifications aimed at making it a safer product for seniors.

6. Timing a reverse mortgage well can mean more money

Home with money
Fertas / Shutterstock.com

When there are low interest rates and high housing prices, it can be a good time to get a reverse mortgage.

However, the decision to get a reverse mortgage should be part of your overall financial plan.

7. Reverse mortgage TV ads are confusing

A senior man holds a remote control and coffee while watching tv on his sofa
adriaticfoto / Shutterstock.com

A 2015 study by the Consumer Financial Protection Bureau (CFPB) found that reverse mortgage TV ads are often misleading or confusing.

Reverse mortgages are somewhat complicated and it is important to understand fact versus fiction. Here are the truths behind the ads.

8. Reverse mortgages may not be better than downsizing

An older woman sitting on her sofa at home
wavebreakmedia / Shutterstock.com

Drawing on your home equity is one option to free up that home equity in retirement, but downsizing is another popular choice.

By selling your home and relocating to a smaller property, you may find more financial efficiency than if you were to take out a reverse mortgage on your existing home.

However, if staying in your current home is your goal, a reverse mortgage may be an option worth considering.

9. Reverse mortgages have several different payment options

Thinking senior woman
ESB Professional / Shutterstock.com

Most people are familiar with the “lump sum” option for receiving reverse mortgage proceeds.

In fact, the lump sum reverse mortgage has lost popularity in recent years due to changes to the Home Equity Conversion Mortgage (HECM) program.

Today’s borrowers are more often taking their reverse mortgages as credit lines, or under term (for a set number of years) or tenure-payment (for life) plans.

10. Reverse mortgages do have upfront costs

Senior couple doing retirement planning and math
wavebreakmedia / Shutterstock.com

Like any home loan, borrowers face upfront costs including a mortgage insurance premium, an origination fee paid to the loan originator, appraisal fees, counseling fees and additional closing costs such as title and notary fees.

The origination fee for HECM loans is capped, but it’s a good idea to ask what these potential fees are likely to total in advance of paying them.

11. Most (not all) reverse mortgages are government-guaranteed

A happy senior Asian couple uses a tablet computer outdoors
interstid / Shutterstock.com

The vast majority of reverse mortgages are taken out as HECM loans under the government-insured program.

There are also private reverse mortgages available through lenders that may offer some additional benefits to borrowers, such as the ability to borrow a higher level of home equity.

12. Home equity is the biggest source of wealth for most Americans

A senior man relaxes at his computer desk
Roman Samborskyi / Shutterstock.com

According to the Federal Reserve, 80% of Americans’ non-financial assets are represented by their homes, and a 2015 report published by the Brookings Institute reports that home equity is the biggest source of credit for most Americans.

Home equity may be your biggest asset and, therefore, a viable option for financing your retirement. A reverse mortgage is one way to tap into this home equity.

13. There’s more than one type of reverse mortgage

Senior couple reading
YAKOBCHUK VIACHESLAV / Shutterstock.com

Reverse mortgages are not limited to the HECM type, nor are they strictly loans used to remain in the home you currently own. Here are the most popular types of reverse mortgages.

  • Lump-sum: The borrower gets the entire loan at once.
  • Annuity or tenure plan (monthly payments): The lender makes payments for as long as at least one borrower lives in the home as a principal residence.
  • Term payments: The loan is structured in monthly payments for a set term.
  • Line of credit: This reverse mortgage is similar to a home equity line of credit (HELOC).
  • Tenure plan and a credit line: The borrower gets monthly payments as in a Tenure Plan, and they are also offered a Line of Credit.
  • Term payments and a credit line: The borrower gets monthly payments as in a Term Plan, and at the end of the term, they are offered a Line of Credit.

If you are looking to get a reverse mortgage and purchase a new home in a single transaction, contact a reverse mortgage specialist to learn more about the HECM for Purchase program. As there are different problems facing many households, there are different reverse mortgage types to help solve them.

14. The right decision depends on you

A senior worker in eyeglasses stands in his carpentry workshop
Jacob Lund / Shutterstock.com

Getting a reverse mortgage is not for everyone. Like most things, the decision to get a reverse mortgage — or not — depends entirely on you. There are many different personal factors to consider.

If you are unsure whether the loan is right for you, you might consider using the reverse mortgage suitability quiz, or get a quick estimate of how much you may be able to borrow.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
3 Ways to Downsize Your Life to Save Money, Time and Stress
3 Ways to Downsize Your Life to Save Money, Time and Stress

Downsizing can cut the bloat in your finances — and give you more free time and less stress.

13 Smart Tricks to Organize Every Room of Your Home
13 Smart Tricks to Organize Every Room of Your Home

Get your household organized with these brilliant and inexpensive tricks.

11 Home Upgrades With the Best Payback in 2020
11 Home Upgrades With the Best Payback in 2020

The home remodeling projects that deliver the best bang for the buck tend to have one thing in common.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

How Baby Boomers Are Earning an Extra $573 a Month
How Baby Boomers Are Earning an Extra $573 a Month

In the gig economy, baby boomers are out-hustling their younger competition. You can cash in, too.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Seniors With COVID-19 May Display This Unusual Symptom
Seniors With COVID-19 May Display This Unusual Symptom

Largely asymptomatic seniors may experience a symptom not commonly associated with the coronavirus.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?
Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?

Understanding survivors benefits rules is the key to getting the most from your benefit.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

18 Early Black Friday Deals on Amazon Today
18 Early Black Friday Deals on Amazon Today

These items are all steeply discounted — but the deals won’t last long.

These Are the 10 Worst Cars for Depreciation
These Are the 10 Worst Cars for Depreciation

Two types of vehicles are especially likely to see steep plunges in value.

Never Buy These 10 Things With Your Credit Card
Never Buy These 10 Things With Your Credit Card

Credit cards offer many conveniences and protections, but sometimes it’s simply smarter to keep the plastic tucked away.

13 Amazon Purchases That We Are Loving Right Now
13 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

10 Things I Always Buy at Trader Joe’s
10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

8 Surprising Household Items You Can Sell for Fast Cash
8 Surprising Household Items You Can Sell for Fast Cash

Sometimes, the humblest household items are worth the most money.

Cut These 11 Expenses Now If You Hope to Retire Early
Cut These 11 Expenses Now If You Hope to Retire Early

Like the idea of financial independence? Part of the FIRE equation is cutting costs.

5 Ways Social Security Will Change in 2021
5 Ways Social Security Will Change in 2021

These adjustments will affect both workers and retirees in the new year.

Stop Buying These 19 Things Online
Stop Buying These 19 Things Online

The internet has changed how we shop. But for some things, you’re still better off buying the old-fashioned way.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

There are easy high-paying majors available in the U.S. — and no bachelor’s degree is required. We’re here to help you find easy degrees that pay well.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

7 Tips for Building an Emergency Food Supply
7 Tips for Building an Emergency Food Supply

A pandemic or natural disaster could leave you reliant on your existing emergency food supply. Is your pantry well-prepared for emergencies? Knowing what to stock up on for emergencies can be a difficult task and we’re here to help.

11 ‘Disposable’ Items You Should Be Reusing
8 Things You Should Buy at Restaurant Supply Stores
8 Things You Should Buy at Restaurant Supply Stores

You don’t have to be a chef or a restaurant owner to shop here.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.