Reverse Mortgage Facts - Reverse Mortgage Information

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Reverse Mortgage Alert
Reverse mortgages are complex, often confusing financial products. If you or an elderly relative are even considering one, it’s important to know all of the risks and pitfalls beforehand. With that in mind, we’ve created this list of facts to help you understand what can really happen if you take out one of these loans.


Reverse Mortgage Facts:

You must be 62 or older to qualify. If there are multiple borrowers, the youngest borrower must be at least 62.
You must have significant equity in your home. As a rule of thumb, you need about 40% equity.
You must live in the house. The loan can only be taken on a home that is your primary residence. If you stop living in your house for 12 months, the loan will become due.
There’s a financial assessment. Before you receive your HECM, you must take a financial assessment, which will look at your income and credit history. Based on the results of this assessment, some of the loan’s proceeds may be set aside to pay for property taxes and insurance.
There are five payout options. These are: lump sum, tenure, term, line of credit, modified tenure, and modified term. Lump sum and line of credit are fairly straight forward. Tenure, term, and the modified versions refer to monthly payments. See this page for more information.

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You must pay off your mortgage. You must use the proceeds of your reverse mortgage to pay off the balance of your conventional mortgage.
You can access to some but not all of your equity. You will not receive all your home equity from this loan. Instead, you will receive a percentage that is calculated based on prevailing interest rates, borrower age, and the value of your home.
The US government does not originate reverse mortgages. The government insures HECMs, which protects you and the lender, but it is not a lender. You will be working with a private company.
Your lender probably won’t be a big bank. Most reverse lenders are smaller companies that specialize in this type of loan. Big banks like Wells Fargo and Bank of America exited the industry back in 2012.
A reverse mortgage may not be your best option. For some, a HECM is a great option that serves a need. For others, there are better alternatives, like a home equity loan.

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