Frequently asked questions

Can I apply for a reverse mortgage?

The federally insured HECM requires you to be at least 62. Some privately insured proprietary products are available from age 55 in certain states and for certain property types. Talking with an experienced loan officer is the fastest way to find out which programs you actually qualify for.

How much do I qualify for?

The amount depends on several variables, so a conversation gives you real numbers rather than a range. What it depends on:

• Your age, or the age of the younger spouse if there are two of you
• The state you live in
• Current interest rates
• Your home’s appraised value
• The product and disbursement option you choose

In general, the older you are, the more your home is worth, and the less you owe on it, the more you can access.

How will I receive my cash?

For most products you can access your equity in whichever way suits your needs: a lump sum upfront, monthly disbursements, a line of credit, or a combination of all three.

One limit to know: during the first 12 months after closing you cannot draw more than 60 percent of the available proceeds. From month 13 you can take as much or as little of the rest as you wish. There is an exception — if you are paying off an existing mortgage, you may pay it off and take an additional 10 percent even if that exceeds 60 percent.

What happens at the end of the loan?

A reverse mortgage typically ends when you no longer use the home as your primary residence — a permanent move, a sale, or the last borrower passing away. At that point the balance must be repaid.

Because these are non-recourse loans, you or your estate can never owe more than the value of the home when it becomes due and the home is sold.

What about closing costs?

Closing costs are close to what you would expect on a traditional forward mortgage, and most can be financed into the loan, so out-of-pocket cost at closing is minimal.

Similar to a forward mortgage: appraisal (usually paid in advance), title services and title insurance, credit report, property inspection (not always required), origination fee, state and local taxes and tax verification fee, government recording fees.

Unique to a reverse mortgage: reverse mortgage counseling (paid in advance) and FHA insurance (HECM loans only).

Does my home qualify?

Eligible property types include single-family homes, two-to-four unit properties, manufactured homes built after June 1976, condominiums and townhouses. Co-ops do not qualify.

Are there any special requirements?

You must own the home, be at least 62, and have enough equity. There are no medical requirements.

Lenders must complete a financial assessment of every borrower to confirm you can keep paying mandatory obligations such as property taxes and homeowners insurance. If a lender concludes you may struggle with those, they are authorized to set aside a portion of the loan proceeds to cover future charges.

What if I have an existing mortgage?

You may still qualify. The reverse mortgage must be in first lien position, so any existing debt has to be paid off — which you can do with the reverse mortgage itself, from savings, or with help from family.

For example: you owe $100,000 on an existing mortgage, and based on your age, home value and interest rates you qualify for $125,000. You pay off the entire existing mortgage and still have $25,000 left to use as you wish.

Will I lose my government assistance?

A reverse mortgage does not affect regular Social Security or Medicare benefits.

Medicaid and Supplemental Security Income are different. Proceeds you receive must be spent in the month you receive them — funds retained beyond that count as an asset. If you receive $4,000 for home repairs and spend it all within the same calendar month, you are fine. Anything left in your account the following month counts. If total liquid resources exceed $2,000 for an individual or $3,000 for a couple you would be ineligible for Medicaid. Check with your local Area Agency on Aging or a Medicaid expert before drawing funds.

When should I not consider a reverse mortgage?

Because of the upfront costs, if you intend to leave your home within two to three years there are likely cheaper options — a home equity loan, a no-interest loan or repair grant from your county or a local nonprofit, or a property tax deferral program.

And if leaving your home to your children matters more than anything else, consider other options, because in many cases the home is sold to repay the loan.

What are my payment plan options?

A lump sum, fixed monthly payments for a set term or for as long as you live in the home, a line of credit, or a combination of these.

How much money can I get?

It depends on your age (or the younger spouse’s age), the appraised value of your home, interest rates, and for the government program, the FHA lending limit. If your home is worth more than that limit, your funds are calculated against the limit rather than the full value.

The FHA lending limit is adjusted annually — call us for the figure currently in effect.

How can I use the money?

However you like. Common uses: supplementing retirement income for daily living expenses, repairing or modifying the home (widening halls, installing a ramp), paying for health care, paying off existing debts, covering property taxes, or preventing a foreclosure.

How does the interest work?

You are charged interest only on the proceeds you actually receive. Both fixed and variable rates are available. Variable rates are tied to an index plus a margin that typically adds one to three percentage points. Interest is not paid out of your available proceeds — it compounds over the life of the loan until repayment.

Does the unused line of credit earn interest?

No, not in the way a savings account does. After the first month of a HECM loan, the principal limit increases each month at a rate equal to one-twelfth of the mortgage interest rate then in effect, plus one-twelfth of the annual mortgage insurance premium rate. Think of this as a further extension of credit rather than an accrual of interest — but it is real, and it is why setting up a credit line early can be worthwhile.

What is the loan closing date?

For all HECMs it is the date you sign the note. That date must appear and be identified as the loan closing date in Block 1 on Page 1 of the Form HUD-1 Settlement Statement you receive at closing.

What is the right of rescission?

Regulation Z of the federal Truth in Lending Act gives you three business days after closing to cancel the loan. Lenders may not charge interest on funds held for you during that period — interest begins accruing the day after disbursement.

You must receive a copy of the Notice of the Right of Rescission at closing, and you sign and date it to record when you received it. If you decide to rescind, notify your lender within those three days following the instructions on the notice.

Why did I sign two mortgages and notes at closing?

The second instrument secures the servicing fee set aside — the amount deducted from your original principal limit to guarantee payment of your monthly servicing fee. That set-aside is not part of your outstanding balance and does not accrue interest. Because it is not part of the loan balance, any funds remaining in it at repayment are not refunded.

Why am I charged a servicing fee?

The monthly servicing fee covers administering the loan: customer service, maintaining accurate records of your balance including interest and insurance premiums, tracking your property taxes and hazard insurance, certifying your occupancy status, issuing statements, issuing and collecting payments, collecting the loan when it comes due, and discharging the mortgage.

Why is there a mortgage insurance premium?

Under the HECM program you pay a premium at closing equal to 2 percent of your home’s appraised value or the FHA lending limit, whichever is less. You are also charged an annual premium of 0.5 percent of the outstanding balance, which does not come out of your available proceeds but accrues and is paid when the loan becomes due.

The MIP buys you two guarantees: if the company servicing your account goes out of business, the government steps in and you keep access to your funds; and you will never owe more than the value of your home when the loan is repaid. The premium is considered fully earned at closing and is non-refundable.

When do my monthly payments start?

Your first monthly payment is sent on the first business day of the month following your loan funding date. If your loan closed at the end of May and funded in June, your first payment is issued the first business day of July.

Can I change my payment plan later?

With a HECM, if your loan documents allow for a plan change, yes — you can switch from monthly payments to a line of credit or the reverse. There is usually a fee. Discuss the options and any fee with your servicer before you commit.

What if my servicer does not send my funds on time?

Your servicer must send requested line of credit funds within five business days of your request, and scheduled monthly payments by the first business day of each month. If they miss those windows, FHA can fine the servicer and require them to pay you an extra 10 percent of the payment due, plus interest for each additional day of delay, up to $500 per instance. That fine may not be added to your loan balance.

Can I make a partial prepayment?

Most reverse mortgages permit partial prepayment without penalty. On a HECM, payments are applied in this order: first to mortgage insurance premiums, then servicing fees, then interest charges, and finally to principal advances. Confirm the specific sequence with your servicer, as it varies by product.

Can I deduct the interest for income tax purposes?

Only once the interest has actually been paid. As long as you have made no payments toward the loan, you cannot deduct the interest charges. If you have made partial prepayments, confirm they were applied to interest. Consult a tax professional about your own situation — we are not tax advisors.

What is a repair rider?

In some cases certain repairs must be completed for the property to meet lending standards. If that was a condition of closing, you signed a Repair Rider agreeing to complete them within a stated timeframe. It forms additional terms of your loan agreement.

Take the deadline seriously. Failing to complete repairs by the stated date is a default of the loan agreement, will suspend payments to you, and may cause the loan to be called due and payable.

What is a repair set-aside?

The portion of your available funds reserved solely for completing required repairs. It is not part of your loan balance until the funds are actually disbursed. Your servicer will arrange an inspection to verify the work; interim inspections can sometimes be arranged so partial completion payments can be made.

Should I receive statements?

Yes. Your servicer must issue a statement after each line of credit activity, and must notify you of any upcoming interest rate change that affects your loan. They must also provide an annual statement by January 31 summarising the prior year: all principal advances, mortgage insurance premiums accrued, interest charges, and property charges paid.

Why do I receive occupancy certificates?

All reverse mortgages require you to periodically certify that you still live in the property as your primary residence. Sign the certificate truthfully and return it promptly — failing to do so can interrupt your payments and eventually lead to default.

Do I have to pay my property taxes?

Yes, and this matters more than almost anything else on this page. Keeping property taxes current is your responsibility. Failing to do so is a default under your loan agreement and can be grounds for calling the loan due and payable.

You can have your servicer pay them on your behalf through a tax set-aside — you agree how much and for how many years, and that amount is reserved from your loan proceeds. Those funds do not become part of your balance until they are disbursed.

Property tax deferral programs are allowed only if the lien created is subordinate to your reverse mortgage. Tax exemption programs are permitted; coordinate participation with your servicer.

Do I have to maintain hazard insurance?

Yes — in an amount equal to at least 100 percent of the insurable value of the improvements at the time of closing. Give your servicer a copy of the policy and make sure it is renewed on expiry. Failing to maintain adequate coverage is a default and can be grounds for calling the loan due.

As with taxes, you can arrange an insurance set-aside so your servicer pays the premiums on your behalf from reserved loan proceeds.

Do I need flood insurance too?

If FEMA has identified your property as being in a special flood hazard area, yes, in compliance with the Flood Disaster Act of 1973. Provide your servicer with evidence of coverage and renew it on expiry.

FEMA periodically updates its flood maps. If your area is newly designated a flood risk you must obtain coverage; if your area is reclassified as non-risk, you may cancel once your servicer has been formally notified.

Why is my loan being assigned to HUD?

Under the HECM program, your servicer may assign the loan to HUD when the outstanding balance reaches 98 percent of the maximum claim amount. HUD then administers the loan — continuing your disbursements and tracking property taxes, hazard and flood insurance, and occupancy. Nothing about your rights changes.

What happens if I file for bankruptcy?

Filing is not a default under the HECM program. You cannot access additional funds unless the request is approved by the court or the trustee monitoring proceedings. Notify your servicer as soon as any bankruptcy action is taken. If your loan is not a HECM, check with your servicer whether bankruptcy is a default under your agreement.

What is a maturity event?

Any event that causes the loan to be called due and payable. Once one occurs, no additional funds can be advanced. Maturity events include:

• All borrowers have passed away
• All borrowers have sold or conveyed title to a third party
• The property is no longer the principal residence of at least one borrower, for reasons other than death
• A borrower has not lived in the property for more than 12 months because of physical or mental illness
• The borrower fails to pay property taxes or insurance and all attempts to resolve it are exhausted
• The property is in disrepair and the borrower refuses or is unable to repair it

Can I pay it off early? How long does my estate have?

You can pay the loan in full at any time during its term, without penalty.

Once called due and payable, the loan must be repaid in full, and your estate should work closely with the servicer. If no arrangements are made, the servicer may proceed with foreclosure between 30 days and six months after the loan is called due. If you or your estate are actively working to refinance or sell in order to satisfy the loan, foreclosure may be forestalled — though typically not beyond one year from the maturity event.

What does non-recourse mean?

It means neither you nor your estate can ever be required to repay more than the value of the home when the loan comes due and the home is sold. If the balance exceeds the sale price, FHA mortgage insurance covers the difference. This is the single most important consumer protection in the program.