A reverse mortgage is a loan for borrowers 62 and over which converts your home equity into cash. The unique benefit is that you do not need to make any more monthly mortgage payments.

Please note: Interest and fees are added to the loan balance over time, and you just continue to pay your property taxes, insurance, and uphold the terms of the loan.

Both are mortgages on a property that belongs to you. Instead of paying into your home every month with a traditional mortgage, you pull money out with a reverse mortgage and repay the loan when you leave the home. These funds can come as a lump sum, installments, line of credit, or in a combination of these options. While the loan balance accrues interest over time, you are not required to make monthly mortgage payments on the loan as long as you live in the home. [1]

[1] The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

There are two types of reverse mortgages: 

1) A traditional Home Equity Conversion Mortgage (HECM).

2) A suite of HomeSafe® reverse mortgage tools.

A HECM is insured by the Federal Housing Administration (FHA) and has maximum loan limits which vary by County.

See: FHA Loan Limits

HomeSafe® reverse mortgages offer a variety of options, from standard to jumbo loans of up to $4 million with comparable protections to a HECM. [2]

[2] The HomeSafe® reverse mortgage is a proprietary product of Finance of America Reverse, LLC and is not affiliated with the Home Equity Conversion Mortgage (HECM) program. 

Not all HomeSafe® products are available in every state.  Aiello & Associates brokers the reverse mortgages through Finance of America Reverse, LLC, but is not associated with Finance of America Reverse, LLC.

The face of retirement has changed. People are living longer, more active lives, and they want more options in retirement. Whether it’s starting a new business, paying down debt or medical bills, taking that dream vacation, giving back, purchasing a new home, or just having extra income available for living expenses, millions of homeowners have leveraged the equity in their homes to work on their retirement goals.

The best thing to do is to lay out the numbers and evaluate your priorities. A licensed loan officer will walk you through a quote specific to your situation so you can decide if a reverse mortgage will get you where you want to go.

Like a traditional mortgage, there are costs associated with a reverse mortgage. Most of those upfront fees can be rolled into your loan, minimizing your out-of-pocket costs. Along with interest, you may have an origination fee, mortgage insurance premium, property appraisal, typical third-party fees, and a modest charge for independent counseling.

• Reverse mortgages are non-recourse loans, meaning you or your heirs will not be responsible for more than what the home is worth.
• All borrowers are required to attend independent educational counseling to ensure they are fully aware of how the loan works.
• Your home still belongs to you and you will not lose your home as long as you stay current on the terms of the loan. [1]
• All borrowers go through a financial assessment to ensure a reverse mortgage is a viable solution.

[1] The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

The loan is repaid when the borrower or qualified non-borrowing spouse no longer lives in the home. Often, the estate will sell the home to pay off the loan, but heirs also have the option to pay off the loan by other means and keep the property.[1]

[1] The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

What if you’ve just gotten a reverse mortgage then change your mind?

With most reverse mortgages, you have at least three business days after closing to cancel the deal for any reason, without penalty. This is known as your right of “rescission.”

To cancel:

• You must notify the lender in writing within three business days (including Saturdays but NOT Sundays or legal public holidays).
• Send your letter by certified mail and get a return receipt. That will let you document what the lender received, and when.
• Keep copies of your letter and the supporting documents – including any letters you send to and receive from the lender.

After you cancel, the security interest in your home is no longer valid, and you are not responsible for any amount for the credit. The lender has 20 days to return any money you have paid for the financing, and take actions needed to terminate the security interest on your home. If you received money or property from the creditor, you must offer to return it after they release your security interest and they return any money you paid.

For the best planning, follow these tips:

• Know all you can about reverse mortgages before you commit – It pays to be well-informed, and you will be more relaxed when you know what to expect.

• Make sure you qualify for the loan (you’re at least 62 and own your home) – Speak to your counselor, and if you do not qualify the counselor may know of another program that can solve your financial situation.

• Get to know the loan options – Read about each one and consider which works best for you based on your home value, county, and age. Get your family’s input as well, but always do what feels right to you. After all, it’s your loan.

• Plan your repayment carefully – Do not leave this important step to the last minute or unresolved for your heirs. Lay out a plan and be sure to record it in your will. Discuss with your family about their future responsibilities.

• When you discuss the reverse mortgage with your counselor – Have a friend or family member who can help you take notes, ask additional questions, and weigh in afterward. Sometimes it helps to have someone there to bounce options off of, or just hold your hand while your counselor explains your choices.

• Ask your loan agent as many questions as you can think of to be sure you fully understand everything.  Your loan agent is there to assist you, so feel free to ask for help along the way. Call your loan agent if anything should come up prior or after the loan closes.

• Prior to scheduling the appraisal appointment, spruce up your house – Be sure everything is clean and repair any minor broken things. Try to look at your home from an appraiser’s point of view and be realistic in your expectations of your home’s value.

• If you are an adult child of someone who’s thinking of obtaining a reverse mortgage – Find out all you can about the loan and be a part of the process if your parent(s) allows it.

• If you are a baby boomer, start planning now! – Pay off as much of your current mortgage as you can afford and get your home ready to be a retirement paradise.

• Most importantly – If you ever have questions or do not feel comfortable with some part of the loan, stop! Ask questions and get them resolved prior to moving on.

Pros of a Reverse Mortgage

You can better manage expenses in retirement

Many seniors experience a significant income reduction when they retire, and monthly mortgage payments can be their biggest expense. With a reverse mortgage, you can supplement a diminished income and continue to pay your bills.

You do not have to move

Instead of leaving your home, a reverse mortgage allows you to age in place (and potentially stay near friends and family). Additionally, while there is a cost to a reverse mortgage, it may cost less in the long run than having to move and either purchase another home or rent in a new location.

You do not have to pay taxes on the income

The income you receive from a reverse mortgage is not taxable because the IRS considers the money “loan proceeds.” Tax rules can be complicated, however, so be sure to see a tax professional for advice before committing to a reverse mortgage.

You are protected if the balance exceeds your home’s value

Being that a reverse mortgage balance grows over time, it is possible that it can exceed the fair market value of the property. However, the amount of debt that must be repaid can never exceed the property’s value.

A reverse mortgage is a “non-recourse” loan – meaning that the lender can have no claims against your other assets or heirs in this scenario.

Your heirs have options

Reverse mortgages can be paid off by borrowers sooner, but typically end when the borrower moves, sells the home, or passes away.

In an estate situation, heirs have several choices: 

• They can sell the property to repay the debt and keep any equity above the loan balance.
• They can keep the property and refinance the reverse mortgage balance if the property’s value is sufficient.
• Or, if the debt exceeds the property value, the heirs can settle the loan by giving the title back to the lender. The lender can then file a claim for any unpaid balance with the insurer (almost always the FHA).

Cons of a reverse mortgage

You have to pay for it

Reverse mortgages have costs that include lender fees (origination fees are capped at $6,000 and depend on the amount of your loan), FHA mortgage insurance charges and closing costs. These costs can be added to the loan balance; however, this means you would have more debt and less equity. 

You will also be paying monthly servicing fees which can be as high as $35 if your interest rate adjusts on a monthly basis.

You cannot deduct the mortgage interest from your taxes until your loan is paid off

You may have enjoyed the mortgage interest deduction on your taxes when you were making monthly payments on your mortgage. However, with a reverse mortgage, you will not be able to deduct the mortgage interest each year – You will only be able to do so when the loan is paid off.

You could inadvertently violate other program requirements

A reverse mortgage could cause you to violate asset restrictions for the Medicaid and Supplemental Security Income (SSI) programs. This is a complicated topic, so be sure to speak with an attorney who specializes in elder law or a legal clinic prior to searching for a reverse mortgage program.

Your home can be foreclosed

Since reverse mortgages does not require monthly principal and interest payments, it may seem as though foreclosure is impossible. However, this is not the case – foreclosure can happen if you fail to keep up with property taxes, homeowner’s insurance, and monthly HOA fees.

You could have a hard time navigating changes to your status

Reverse mortgages can be complicated, and if something changes with your status, your reverse mortgage options can change as well.

• If you go to a long-term care facility, for example, would you still be considered a resident in your home?
• If you marry after obtaining a reverse mortgage, must your spouse move out of the property if you should pass away?

For details regarding these and other questions, it’s best to speak with an attorney who specializes in elder law or contact a pro-bono legal clinic.