Misinformation about Reverse Mortgages is everywhere. This can help to clear up the confusion:
1. How is a Reverse Mortgage different from a regular mortgage?
Like a traditional mortgage, a Reverse Mortgage allows a homeowner to borrow a loan using their house as security. Also like a standard mortgage, your home’s title remains in your name when you take out a Reverse/HECM Loan.
But unlike a traditional mortgage:
- A borrower doesn’t make monthly payments on a Reverse Mortgage.
- The loan will be paid back when the borrower stops living in their house. Interest/fees are added onto the loan’s balance every month, causing the balance to grow.
- A homeowner is still required to pay homeowners insurance/property tax, live in the home as their primary residence, and make sure their house stays in good condition.
With a Reverse/HECM Loan, the amount that a homeowner owes increases—instead of decreasing—over time. This happens as interest/fees add to the loan’s balance each month. As your loan balance goes up, your home’s equity goes down.
A Reverse Mortgage isn’t free money. It’s an actual loan where borrowed money plus interest plus fees contribute to a rising loan balance each month. Eventually, the homeowner or their heirs will have to pay back the mortgage, typically by selling the house.
2. What can you use it for?
Here are some of the most common reasons homeowners and homebuyers aged 62 and older take out a Reverse Loan:
- Pay off an existing first mortgage (or other real estate-secured debt) with the proceeds received.
- Refinance an existing Reverse/HECM Loan to access a larger line of credit.
- Eliminate a current monthly mortgage payment, helping those finding it harder to afford their home.*
- Supplement retirement or fixed income—offering an increase in monthly funds/cash.
- Pay down high-interest credit card debt or pay for home improvements.
- Set up an emergency medical fund or cover long-term care expenses.
- Move into a new home that better fits an aging homeowner’s needs.
For many borrowers, a Reverse Loan can also be easier to qualify for. If you’ve hit roadblocks when applying for a traditional purchase or refinance mortgage, a Reverse Loan might be another option.
*Although there are no monthly mortgage payments, the borrower will continue to be responsible for paying property taxes, homeowners insurance, and property charges and maintaining the home.
3. Do you get to keep your house?
Absolutely. Contrary to what you might have heard, taking out a Reverse/Home Equity Conversion Mortgage doesn’t mean “the bank owns your house.” Just like a traditional mortgage, as long as the terms of the loan are met (such as paying property taxes, homeowners insurance, and property charges and taking care of maintenance), you’ll retain full homeownership and can sell your house at any time.
4. How do you receive your funds?
You can collect the proceeds of your HECM/Reverse Loan as a lump sum, monthly payments for a specified time or for as long as you live in the home, a line of credit, or a combination of these. The funds can be used any way you wish, including supplementing your income, paying for a large expense, or preparing for future needs.
Reverse payouts aren’t considered income and won’t affect Medicare or Social Security benefits.*
The amount you could receive depends on a handful of individual factors—like the age of the youngest borrower or eligible non-borrowing spouse, your home’s value, the amount of equity you have, FHA lending limits, the current interest rate, and the Reverse Loan product and payment option you choose.
Your Academy Loan Officer can provide you with a quote that’s tailored to you, at no cost or obligation.
*Please consult a retirement or financial planner for advice and guidance on Medicare and Social Security benefits planning strategies.
5. How does this affect your heirs?
If a borrower takes out a Reverse/Home Equity Conversion Mortgage, they can still leave their home to their heirs. When the borrower passes away, their heirs may either:
- Pay the balance due on the Reverse Loan (principal plus accumulated interest and Mortgage Insurance Premium) and keep the house.
- Sell the house and use the proceeds to pay off the Reverse Mortgage.
If heirs choose to sell the home, any remaining equity after the Reverse Loan is repaid is theirs to keep.
6. How do you qualify?
To be eligible for an HECM/Reverse Loan:
- All borrowers must be aged 62 or older.
- The home must be your primary residence and meet Federal Housing Authority (FHA) minimum property standards.
- You must have sufficient home equity—typically at least 50 percent.
- Counseling must be completed with an HUD-approved counselor to make sure you understand all potential risks and responsibilities.
Many homeowners are under the impression that a Reverse Mortgage should only be used as a last resort. But a Reverse Loan can actually be utilized strategically to support financial planning. For example, monthly advances may help you supplement your retirement income so you can avoid liquidating invested assets. Your Academy Loan Officer can work with your financial advisor to help you develop a sound plan for the future.