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Reverse Mortgage Info for Seniors

Reverse mortgages can be helpful for seniors who fully understand how the process works and any downfalls that may be involved.  You must take the time to educate yourself and your spouse about the options and how the loan works. This can be a complicated process and counseling is required to be sure to make the best choice for you and your family.  

What is a Reverse Mortgage?

It is basically a loan.  Homeowners 62 plus that have a good amount of equity in there home can borrow against that value.  You will receive the value one lump sum with a monthly payment or a line of credit.  Different from a forward mortgage - a reverse mortgage does not require you to make any loan payments.  Rather, when you pass away, sell or move permanently the loan is due.  There are federal regulations to ensure the loan structure doesn't exceed the value of the home.  

There are 3 Types of Reverse Mortgages:what is a reverse mortgage

  • Single-Purpose Reverse Mortgage

This type of Reverse Mortgage is offered by state and local agencies as well as nonprofits.  This would be the most economical process for a reverse mortgage.  This option is ONLY to pay for specific approved things, such as property tax or home repairs. 

  • Home Equity Conversion Mortgage

HECM's are backed by the United States Dept of Housing and Urban Development and are federally-insured.  This option is more costly and has some additional upfront costs.  This type of loan can be used for anything.  There are no restrictions, income limits or medical requirements.  You are required to have counseling sessions to be fully aware and prepared for this type of loan. 

  • Proprietary Reverse Mortgage

If you have a higher valued home, this loan provides a large advance.  This loan is not federally insured.  You will likely be able to borrow more but through counseling you can decide if this is the best type of reserve mortgage for you.  

Reverse Mortgage 6 ways to receive your money: 

  1. Equal Monthly Payments - Steady payments to the borrower
  2. Lump Sum - This option has a fixed rate and you would receive all the proceeds at one time when your loan closes.
  3. Line of Credit - This is available as needed and you pay interest only on what is used.
  4. Term Payments - Equal monthly payments spread over a period of time.
  5. A Line of Credit and Equal Monthly Payments - Lender gives steady monthly payments as long as one borrower is in the home as principal resident.  If more is needed you can access a line of credit.
  6. Term and a Line of Credit - Lender gives you equal monthly payments for a time period.  If you need additional funds there is a line of credit to access.

How Much Can I Borrow From a Reverse Mortgage?reverse mortgage for seniors

This depends largely on the lender and the payment plan.  When using a HECM, the total you can borrow depends on the youngest borrower's age, interest rates and your home's value.  You cannot borrow 100% of your homes value.  A portion of the equity in your home will be used to pay expenses, premiums and interest.  

Wrapping it up

You will want a good education in reverse mortgages before making your final decisions.  This will help in avoiding scams. Remember you really need counseling in the whole reverse mortgage world, so making a hasty decision or being told this is a good decision by relatives, caregivers or financial advisors should be cause for further options.  

While reverse mortgages can be right for certain situations they are not right for every situation.  Do your homework and be sure the value adds up.