The interest rate on a reverse mortgage is usually higher than on a home equity line of credit. Be sure to compare solutions. Interest rates may increase or decrease over time. Since you aren't required to repay the loan before the maturity date, interest keeps accruing and can end up being a significant cost.
As mentioned, you do not need to make monthly payments on your reverse mortgage and the loan (plus any accrued interest) will not come due until the home is no longer your primary residence, you sell the home or you pass away.
A borrower can only take out a reverse mortgage on a home they own and live in for the majority of the year. If the borrower leaves the home for more than six consecutive months for a non-medical issue or 12 consecutive months for a medical issue, the loan will become due.
Modified Term Reverse Mortgage Payment Plan
You can avoid running out of money with this plan if you use your line of credit carefully. If you exhaust the line of credit early on, you may have no equity left to draw on at the end of the term.
If your reverse mortgage loan is in default and you've received a notice that the loan is “due and payable,” you may sell your home for 95 percent of its appraised value.
A reverse mortgage usually must be repaid when the borrower moves out for 12 consecutive months or more, such as into a nursing home or other care facility. If the borrower is married, their spouse can remain in the home under certain conditions.
Selling a house with a reverse mortgage isn't as simple as selling a home with a traditional mortgage — but it can be done with a little planning. With a reverse mortgage, you borrow against the equity in your property to receive cash upfront or a stream of monthly payments.
The 60% Utilization Rule
Home equity conversion mortgage HECM borrowers may only take the greater of 60% of their total available equity or the total amount of their mandatory obligations plus 10% in the first payout.
Alternatives to a reverse mortgage include home equity loan, home equity lines of credit, and cash-out refinances. These financial products can help you tap the equity in your home to use as cash for other purposes.
How Much Money Do You Get From a Reverse Mortgage? The amount of money you can borrow depends on how much home equity you have available. You typically cannot use more than 80% of your home's equity based on its appraised value. In 2023, the maximum amount anyone can be paid from a HECM reverse mortgage is $1,089,300.
Myth #1: The Lender or Government Will Take My Home
With a reverse mortgage, you or your estate continue to retain control and remain on the title of the home. As with any loan, the lender simply puts a lien on the property to ensure the loan gets repaid.
The problem, say advocates, is that many senior homeowners don't understand the fine print in a reverse mortgage. Some wrongly assume the lender will pay the taxes and insurance. But fall behind on those payments or fail to maintain the home, and the lender can foreclose.
Suze Orman's opinion on reverse mortgages
She has spoken out against these loans on numerous occasions, warning that they can be a risky financial decision for many older Americans. One of Suze's main concerns with reverse mortgages is that they can be incredibly expensive.
A reverse mortgage may be a good idea if:
You and your spouse/partner are both 62 or older. You are in a strong financial position. You are able to physically maintain your home.
One of the top benefits of a reverse mortgage is that monthly payments are optional2 – so having a high credit score is not required. While there is no minimum credit score to be eligible for the loan, you will be subject to a credit check as part of the Financial Assessment.
Technically speaking a Reverse Mortgage is guaranteed by HUD/FHA until age 150 of the youngest Borrower. But because that number is still so far above current life expectancy the real answer is that a Reverse Mortgage will last as long as you need it to.
Why Do Reverse Mortgages Have a Bad Reputation? Reverse mortgages come with high-interest rates and high fees. Especially before 1989, bad actors used them to take homes away from senior citizens. The worst of the abuses were then curbed through tight regulations that were put in place since then.
Reverse mortgage loans typically must be repaid, usually by selling the home, when the last borrower dies. However, non-borrowing spouses may be able to stay in the home if they meet certain criteria. Most reverse mortgages today are Home Equity Conversion Mortgages (HECMs).
No. When you take out a reverse mortgage loan, the title to your home remains with you. This webpage has information about HECMs, which are the most common type of reverse mortgage. Most reverse mortgages are Home Equity Conversion Mortgages (HECMs).
Reverse mortgages were created specifically to allow seniors to live in their home for the rest of their lives. Because the homeowner typically receives payments from a reverse mortgage—instead of making payments to a lender—the homeowner can never be evicted or foreclosed upon for non-payment.
Can a family member take over a reverse mortgage? Unfortunately, no. You cannot add a family member to an existing reverse mortgage. However, the surviving spouse may be eligible to continue receiving benefits by applying for a deferral through the HUD, even if they were not originally on the loan as a co-borrower.