Basic Features of a Reverse Mortgage
All reverse mortgages—whether the government-insured Home Equity Conversion Mortgage or
a conventional product—share a set of common characteristics, which include the following:
- You must be at least 62 years old and own a home. (Note: There are some conventional
reverse mortgages that have differing age requirements.)
- You ALWAYS retain title (ownership) to the home. The lender never, at any point, owns
the home, even after you (or last surviving spouse) permanently vacate the property.
- You must still pay property taxes and insurance, and keep the home well maintained. If
you are unable to pay your property taxes and insurance, then a special set-aside from
your reverse mortgage can be created.
- Repayment of the loan occurs when you (or last surviving spouse) permanently vacate
the home. You or your heirs (estate) then must facilitate the pay back of the loan using
either private funds or selling the home. After the loan is repaid, all leftover proceeds
from the sale of the home go to you or the estate.
- The amount of funds you are eligible to receive depends on your age (or age of the
youngest borrower in the case of couples), the value of the home, the interest rate and
the upfront costs. With the HECM product, the county lending limit is a factor. With all
products, the older you are, the more proceeds you are eligible to receive.
- Loan fees can be financed, or paid out of the available loan proceeds. This means you
incur very little out-of-pocket expense to get a reverse mortgage. In most cases, you only
have to pay for the appraisal, which costs roughly $350 depending on your market.
- The loan balance (amount owed) grows each time you access funds from your line of
credit or receive a monthly payment. In addition, the lender is charging you interest on
the outstanding loan balance as well as a monthly servicing fee.
- Repayment of the loan is not required until you (or the last surviving spouse)
permanently leave the home as a primary residence. For the HECM program, you can
live up to 12 consecutive months outside the home, but this may vary for other products.
- All reverse mortgages have a "non-recourse" feature, which means that the total amount
owed can never exceed the appraised value of the home. If the amount owed exceeds
the home's appraised value, then the lender or the federal government (in the case of
the HECM product) will absorb that loss.
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