“A reverse mortgage sounds interesting, but I have so many questions I don’t know where to start.”
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Actually, right here is a great place to start. We’ve taken the questions people ask most often about reverse mortgages and answered them for you below—including helpful links to more detailed information. Just click on a question below to reveal the answer.
Frequently Asked Questions
Whether you’ve heard about a “HECM Mortgage,” “Home Equity Conversion Mortgage,” “HECM Reverse Mortgage,” “HECM Loan,” or “Reverse Mortgage,” it’s all the same thing: the FHA-insured loan program designed to let homeowners age 62 and older tap into their home equity and get cash to use as they wish. Unlike a traditional forward mortgage—where the borrower must begin repaying the loan right away—you don’t have to repay funds received through a reverse mortgage until after the final borrower no longer lives in the home, or if you fail to meet the terms of your loan, such as paying your property taxes and insurance and maintaining your home. There are no monthly mortgage payments required. For more information on the basics of a reverse mortgage, check out our Reverse Mortgage 101 page.
The short answer is, it depends. There are several variables that determine just how much of the home value you’ll be able to access. For instance, the borrowing limit (known as the “principal limit”) can depend on factors such as your age, home value as determined by an appraisal, the amount of outstanding loans against your house, and current interest rate. To get a better idea of how much cash you could receive, check out our Free Quote Calculator for a customized estimate.
The homeowner always maintains the title and ownership of their home, just like a traditional mortgage. Get the facts and read more on other common reverse mortgage myths and misconceptions here.
Because a reverse mortgage does not require monthly mortgage payments, the loan repayment process doesn’t have to begin until you’re no longer living in the home, or if you do not meet the terms of the loan. You can read more on repaying the loan here.
Yes. If there’s an existing mortgage on your home, the proceeds from the reverse mortgage are first used to pay off that loan—and since no monthly mortgage payments are required, you can eliminate that monthly mortgage expense and keep more cash to use as you see fit.
With a reverse mortgage, your heirs can inherit the house, just as they would with any other mortgage. When the loan becomes due, they can decide how to repay the loan balance. Most often, the home is sold and proceeds are used to repay the lender. If there’s any money left over, it goes to your estate. And unlike a traditional mortgage, a reverse mortgage has non-recourse protection—which means that you or your heirs will never owe more than the home’s value. You can read more on what adult children need to know here.
Reverse mortgage proceeds can be taken as a one-time, tax-free payment*, steady, tax-free monthly payments*, a line of credit as a “safety net” for future use, or any combination of these methods.
Like traditional “forward” mortgages, your interest rate determines the amount of interest you’ll pay on your loan. And when it comes to reverse mortgage, there are two rate-type products: Fixed rate and adjustable-rate (ARMs). With a fixed-rate reverse mortgage, the interest rate remains the same for the life of the loan, but requires a single lump-sum disbursement at the time of closing. With an ARM product, payment can be received via single lump-sum disbursement, line of credit, term, or tenure options. The annual adjustable rate comes with a periodical change of up to 2% with a lifetime cap rate of 5% over the start rate. Generally, these interest rates are slightly lower than those of fixed-rate mortgages, but offer greater flexibility with multiple payment options. For up-to-the-minute rates, and to see what you can qualify for at any given time, check out our Free Quote Calculator.
No, reverse mortgage funds are considered non-taxable. What’s more, you can avoid making taxable withdrawals from 401(k) or other retirement plans by replacing the money with a tax-free reverse mortgage*.
Yes. While reverse mortgages do not require monthly mortgage payments, you may choose to make periodic payments as often as you’d like. Unlike some other types of loans, with a reverse mortgage there are no prepayment penalties.
Once you’ve decided that a reverse mortgage is right for you, all borrowers are required to meet with a FHA-approved counselor, either by phone or in person. This is an important step that certifies that you fully understand how a reverse mortgage works before you complete your reverse mortgage application. Plus, it’s a great opportunity to make sure that all your questions have been answered by a third party and that you’re clear on all the details: the process, the financial implications, your options, and more. You can read more on counseling here.
*Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits.
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