Senior Resources » Reverse Mortgage Help for Seniors and Retirees

Reverse Mortgage Help for Seniors and Retirees

Reverse Mortgage Help for Seniors and Retirees

Reverse mortgages can be a lifeline for seniors and retirees facing financial challenges in their golden years. With the ability to provide supplemental retirement income and the option to pay off an existing mortgage, these loans can offer much-needed relief for older homeowners struggling to cover basic expenses. The best part? The proceeds from a reverse mortgage are tax-free. However, it’s important to note that there are certain requirements that must be met to avoid the risk of defaulting and potentially losing your home. Additionally, while a reverse mortgage can be a viable long-term solution, it may not be the best short-term option and heirs may face challenges in keeping the home after the borrower’s passing. If you’re a senior or retiree considering a reverse mortgage, here is everything you need to know.

What is a Reverse Mortgage?

A reverse mortgage provides homeowners over the age of 62 with the opportunity to tap into the equity they have built in their homes. Unlike traditional mortgages, where homeowners make monthly payments to the lender, with a reverse mortgage, the lender actually pays money to the homeowner.

This type of loan allows homeowners to convert a portion of their home’s value into cash, providing them with additional funds to support their retirement or meet other financial needs. One of the key advantages of a reverse mortgage is that it offers flexibility in terms of how the loan proceeds are received.

Homeowners can choose to receive the loan amount as a lump sum, which can be particularly beneficial for covering large expenses or paying off existing debts. Alternatively, they can opt for a line of credit, giving them access to funds whenever needed, or a fixed monthly payment, providing a steady stream of income throughout their retirement years.

Reverse Mortgage Types

asain man with house and cash, symbolizing a reverse mortgage concept

Home Equity Conversion Mortgage

The most common type of reverse mortgage is the home equity conversion mortgage (HECM). Designed specifically for homeowners aged 62 and older, HECMs offer a flexible and accessible way to tap into the equity built up in your home. There are no specific income requirements for this type of loan, making them accessible to a wide range of seniors and retirees.

What really sets HECMs apart is that they are insured by the Federal Housing Administration (FHA). This means that borrowers have added protection and peace of mind, knowing that their loan is backed by a reliable government agency. In addition to the security provided by FHA insurance, HECMs often come with lower interest rates compared to privately insured loans. This can result in significant savings over the life of the loan.

Proprietary Reverse Mortgage

Proprietary reverse mortgages offer an alternative option for seniors and retirees who own higher-valued homes and are seeking larger advances. These private loans differ from the more common home equity conversion mortgages (HECMs) in several key ways.

First, proprietary reverse mortgages do not come with up-front or monthly premiums, providing borrowers with financial flexibility. However, lenders often charge a higher interest rate or may lend a smaller amount compared to HECMs. Despite these differences, similar to HECMs, proprietary reverse mortgages have no restrictions on how borrowers can utilize the funds. This means that homeowners have the freedom to use the loan proceeds for various purposes, such as home improvements, medical expenses, or debt consolidation.

Single-Purpose Reverse Mortgage

A single-purpose reverse mortgage is made available through state, local, or nonprofit agencies, and is designed to cater to homeowners with specific needs or limited financial resources. It differs from other reverse mortgage options in terms of its usage restrictions. These loans are typically intended for a particular purpose, such as home repairs, property taxes, or home improvements. The funds obtained from a single-purpose reverse mortgage can only be used for these specific expenses, as outlined by the lender.

Who Qualifies for a Reverse Mortgage?

elderly African-American couple sitting on the front porch of their home

To qualify for a reverse mortgage, first and foremost, you must be at least 62 years old. Additionally, you must either own your home outright or have a substantial amount of equity in it.

Another important qualification is that you must use the home as your primary residence. This means that you must live in the home for the duration of the reverse mortgage.

Financial responsibility is also a key factor when it comes to qualifying for a reverse mortgage. Borrowers must demonstrate their ability to pay taxes, insurance, and upkeep on the property. This is important to maintain the value and condition of the home over time. Lenders may require documentation or proof of income.

One more step in the process is attending a counseling session with a HUD-approved counselor. This counseling session aims to educate potential borrowers about the terms, risks, and benefits and ensures that you fully understand what you’re getting into.

How Much Can You Borrow?

senior couple, sitting on the couch counting money with papers to look over and a calculator sitting infront of them on the table

The amount that can be borrowed with a reverse mortgage varies for each person and is determined by several factors. To get an accurate estimate of how much you can borrow, consult with a reputable lender. Factors will usually include:


The loan proceeds are primarily based on the age of the youngest borrower.

Interest Rate

Most reverse mortgages have adjustable interest rates, which means they can fluctuate over time. The current interest rate at the time of taking out the loan will affect the amount you can borrow. It’s important to note that lenders often add a margin of 1 to 2 percent to the base interest rate, which can impact the overall loan proceeds.

Home Value

In general, the higher the appraised value of your home, the higher the potential loan amount. However, typically, more than 80% of a home’s equity cannot be used. Lenders consider this factor to mitigate risk and ensure that there is enough equity remaining in the home for the loan to eventually be paid back.

When is a Reverse Mortgage Paid Back?

hands paying money

There are no monthly payments required for a reverse mortgage. However, borrowers are responsible for paying property taxes, homeowners insurance, and any necessary repairs to maintain the property. When it comes to paying back a reverse mortgage, there are several scenarios in which repayment becomes necessary. These include:

  • Selling the property: Proceeds from the sale are used to pay off the outstanding balance of the loan. Any remaining funds after repayment belong to the homeowner or their estate.
  • Homeowner’s passing: Upon the homeowner’s death, the loan becomes due and payable. The borrower’s heirs or estate typically have the option to repay the loan by selling the property or using other resources to settle the debt.
  • Extended absence from the home: If the homeowner lives outside of the house for more than one year, the reverse mortgage may become due. This means that if the borrower moves into a long-term care facility they may be required to repay the loan.
  • Failure to pay property taxes or homeowners insurance: It’s important for reverse mortgage borrowers to keep up with their financial obligations related to the property. This includes paying property taxes and maintaining adequate homeowners insurance coverage. If the homeowner fails to meet these obligations, the lender may require repayment of the loan.

Read More About Reverse Mortgages

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