Frequently Asked Questions

You must be at least 62 years of age, own and have equity in your home, and live there as your primary residence. There are no income, credit or health requirements to qualify.

In a forward mortgage, you use debt to turn your income into equity. In a reverse mortgage, you use debt to turn your equity into income. You are reversing the deal you used to buy your home. Then, you had income and wanted equity. Now, you have equity and want income. In both cases you use debt to turn what you have into what you want.

 Counseling is one of the most important consumer protections built into the program. It requires an independent third-party to make sure you understand the program, and review alternative options, before you apply for a reverse mortgage.

You can seek counseling from a local HUD-approved counseling agent. This counseling is required for all reverse mortgages and may be conducted face-to-face or by telephone.

By law, a counselor must review options, other than a reverse mortgage, that are available to the prospective borrower, including housing, social services, health and financial alternatives. They will discuss other home equity conversion options that are or may become available to the prospective borrower, such as property tax deferral programs, or explain the tax consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate for their heirs.

 There are a few agencies you can contact:

You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.

For example, let's say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off the entire existing mortgage and still have $25,000 left over to use as you wish.

If, however, you only qualify for $85,000, then you would need to come up with $15,000 from your own savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage.

With a reverse mortgage, you don't have to make monthly loan payments. Your income, credit history or your ability to re-pay has nothing to do with getting approved for this type of loan or even the amount of the loan. With most home loans, if you fail to make your monthly repayments, you could lose your home. But with a reverse mortgage, that can't happen.
If you find yourself in a deficit situation where you don't have enough money to pay off the existing mortgage, you may use funds from a grant or gift from a family member or friend to cover the gap, but you cannot incur a new debt obligation (i.e., loan).

No, you're not earning interest like you do with a savings account. The growth factor takes into consideration that your home has appreciated in value over the past 12 months and that you are one year older.

You can never owe more than the value of the home at the time the loan is repaid. Reverse mortgages are "non recourse" loans, which means that in seeking repayment the lender does not have access to anything other than your home. They cannot touch your income, your other assets, or your heirs. So even if you receive monthly loan advances until you are aged 165, your home declines in value between now and then, and the total of monthly advances becomes greater than your home's value - you can still never owe more than the value of your home. If you or your family sell your home in order to pay off the loan, the debt is generally limited by the net proceeds from the sale of your home.

The amount of money you may borrow depends upon your age, market value and equity in the home, and the interest rate at the time of origination.

You can choose to receive the money from a reverse mortgage all at once as a lump sum, in fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or a combination of these. The most popular option – chosen by more than 60 percent of borrowers – is the line of credit, which allows you to draw on the loan proceeds at any time.

For all but the most expensive homes, the federally-insured "Home Equity Conversion Mortgage" (HECM) generally provides the most cash. Within each program, the amount of cash you can get depends on the age(s) of the owner(s), the value (and in some cases the location) of the home, and current interest rates. In general, the most cash goes to the oldest borrowers living in the homes of greatest value at a time when interest rates are the lowest.

In most cases when the borrower moves out of the property or dies, as long as the borrower (or his estate) provides proof to the lender that he is attempting to sell the home or obtain financing to pay off the outstanding debt, the investor will allow him up to one year to do so. After the one year extension period is up, the lender cannot provide any further extension of time to the borrower (or estate).

The technical term for this cap on debt is "non-recourse limit." It means that the lender does not have legal recourse to anything other than the value of the home when the loan is to be paid off.

The out-of-pocket cash cost to you is most often limited to an appraisal fee used to determine the value of your home and a minimal credit check (to see if you are delinquent on any federally-insured loans). Most of the other costs can be "financed" with the loan. This means that you can use reverse mortgage funds advanced to you at closing to pay the costs due at that time, and later advances to pay any ongoing costs. The advances are added to your loan balance, and become part of what you owe - and pay interest on.

Federal Truth-in-Lending law requires reverse mortgage lenders to disclose the projected annual average cost of these loans in a way that includes all of the costs and benefits, and also takes into account the no recourse limits. This Total Annual Loan Cost (TALC) disclosure shows you what the single all-inclusive interest rate would be if the lender could only charge interest and not charge any other fees. Specifically, it tells you the annual average rate that would produce the total amount owed at various future points if only that rate were charged on all the cash advances you get that are not used to pay loan costs. In other words, it shows you what you are paying in total for the money you get to spend.

Proceeds from a Reverse Mortgage are not taxable; it's your money (equity) and is not considered taxable income.

Social Security and Medicare benefits are not affected by reverse mortgages. But Supplemental Security Income (SSI) and Medicaid are different. In general, these programs count loan advances differently than annuity advances. You must be careful to stay within the limits of accumulated cash. For this reason, we recommend that you consult an attorney or specialist in your area for advice. Loan advances generally do not affect your benefits if you spend them during the calendar month in which you get them. But if you keep an advance past the end of the calendar month (in a checking or savings account, for example), then it will count as a "liquid asset." If your total liquid assets at the end of any month are greater than $2,000 for a single person or $3,000 for a couple, you could lose your eligibility. Annuity advances reduce SSI benefits dollar-for-dollar, and can make you ineligible for Medicaid. So if you are considering an annuity, and if you are now receiving - or expect someday you may qualify for - SSI or Medicaid, check with the SSI, Medicaid, and other program offices in your community. Get specific details on how annuity income would affect these benefits.

Because of the upfront costs associated with a reverse mortgage, if you intend to leave your home within 2-3 years, there may be other less expensive options to consider, such as home equity loans, no-interest loans or grants that may be offered by your county government or a local non-profit to repair your home, or a tax deferral program, if you're having problems paying your property taxes. Also, if you want to leave your home to your children, then you should consider other options as in many cases the home is sold to pay back a reverse mortgage.