Retirement in Reverse

Frequently Asked Questions

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Let's bust some common Myths

  • MYTH #1: The lender or government will take my home

    FACT: That’s just plain false. With a Reverse Mortgage, you or your estate continue to retain control of your home’s title. As with any loan, including a conventional forward mortgage, the lender simply puts a lien on the property to ensure the loan gets repaid.

  • MYTH #2: It’ll just give me another monthly payment to make

    FACT: A Reverse Mortgage does not require a monthly mortgage payment as long as you meet the terms of your loan which means you must continue to pay property taxes, home insurance, homeowner’s association dues, and maintain your home. . If you want to make payments to reduce the loan balance, you can—but it’s totally up to you. The loan doesn’t come due until the last borrower permanently leaves the home or you do not meet the terms of the loan as noted above.

  • MYTH #3: My heirs will be responsible for repaying the loan

    FACT: Also false. A Reverse Mortgage is a type of loan called “non-recourse.” This means that the lender can only get repaid from the proceeds of the property sale—with any remaining proceeds going to your heirs. If your the loan balance is higher than your home’s value, your heirs won’t be liable for paying the difference.

  • MYTH #4: I’ll have nothing left to leave my kids

    FACT: Not necessarily. As home values continue to increase, it’s possible the value of your property will appreciate over your lifetime. Interest will accrue on the outstanding loan amount and be added to the balance. But the difference between the two (known as “retained equity”) is what may be available to leave for your kids.

  • MYTH #5: I won’t be able to leave the home to my kids

    FACT: It’s true that typically, proceeds from the sale of the home are used to pay off the Reverse Mortgage — but your heirs do have the option to arrange to repay the loan and buy the home if they wish to keep it in the family.

  • Myth 6: I can’t qualify because my home isn’t paid off

    FACT: As long as you’ve built up enough equity in your home, you can have a mortgage or other debt on your home’s title and still qualify. The proceeds of the Reverse Mortgage must first be used to pay off that mortgage or debt; in fact, a popular reason to get a Reverse Mortgage is to pay off a current mortgage without having to make monthly mortgage payments.

  • Myth 7: I won’t be able to sell my home

    FACT: A reverse mortgage is like any other loan. If you sell your home, that Reverse Mortgage will be paid off at closing. There are no prepayment penalties for paying off or selling the home in advance.

  • Myth 8: I hear lots of people default or get foreclosed on these loans

    FACT: Today, lenders must complete a financial assessment to ensure borrowers will be able to meet their financial obligations. If not, money may be set aside from the loan proceeds to pay taxes, insurance to help borrowers meet the loan terms. Implemented in 2015, these rules drastically reduced tax and insurance defaults to just 0.39%, and “serious defaults” (a broader term including foreclosures) to just 1.03%.

  • Myth 9: I’m afraid my spouse will be kicked out of the house if I pass away

    FACT: The Department of Housing and Urban Development has put additional protections in place to keep this from happening. Eligible non-borrowing spouses can remain in the home if the borrowing spouse has to move to a nursing home or passes away, as long as they continue to meet the terms of the loan.

  • Myth 10: I need more cash flow, but I’m not desperate

    FACT: A Reverse Mortgage is much more than a last resort—more and more financial advisors are finding that it can be a flexible financial tool for retirement planning. You can choose to take the proceeds of a Reverse Mortgage as a lump sum, in monthly payments, a line of credit, or any combination of the three.

Can I get a reverse mortgage if I have an existing mortgage?

If your house isn’t paid off, the proceeds you receive from the Reverse Mortgage must first be used to pay off any existing mortgage at funding. This is one of the most common reasons homeowners 62 years and older take out a Reverse Mortgage.

If I take out a reverse mortgage will the lender automatically own my home?

Homeowners retain title and ownership to their homes when taking out a Reverse Mortgage. However, as with other types of mortgages, if the borrower defaults on the loan terms the home may be foreclosed upon. The borrower must continue to live in his/her home as his/her primary residence and maintain the home. The borrower must also pay his/her property taxes and homeowner’s insurance to avoid default.

What are the restrictions on how reverse mortgage proceeds may be used?

There are no restrictions. The cash proceeds from the Reverse Mortgage can be used for virtually any purpose and borrowers should be cautious of lenders attempting to cross sell other products. Many seniors have used a Reverse Mortgage to pay off other debt, help their kids, make ends meet or have a financial reserve in the form of cash rather than equity in their home (since a reverse mortgage cashes out some of the equity in one’s home). Please note a Reverse Mortgage does require a borrower to continue to pay their property taxes and homeowner’s insurance, in addition to maintaining their home.

What if I outlive my life expectancy, will the lender evict me?

Reverse Mortgages have no time limits like a traditional mortgage, 15 or 30 years for example. As long as the borrower maintains their home, continues to live in it as their primary residence, pays property taxes and homeowners insurance, and does not otherwise default on the loan there is no time limit on the loan. Failure to do these things could lead to foreclosure of the loan.

Will a reverse mortgage automatically affect all of my government benefits?

A Reverse Mortgage generally does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any Reverse Mortgage proceeds that you receive would count as an asset and could impact Medicaid eligibility. Supplemental Social Security also may be affected. If you have any questions about this issue, I highly recommend that you consult with a federal benefits administration’s office or a financial advisor. Getting educated in advance of getting a Reverse Mortgage as it relates to these issues is critical. However, as long as the borrower or their estate sells the property to pay off the debt, there is no recourse if the HECM loan balance exceeds the home’s value at maturity. Any equity remaining in the property (if any) after the Reverse Mortgage is retired belongs to the borrower or their estate.

Will my children be responsible for the repayment of the loan?

If the borrower or their estate wants to retain the property, the balance must be paid in full.

However, as long as the borrower or their estate sells the property to pay off the debt, there is no recourse if the HECM loan balance exceeds the home’s value at maturity. Any equity remaining in the property (if any) after the Reverse Mortgage is retired belongs to the borrower or their estate.

How do I know if I will qualify for a reverse mortgage based on my limited income?

Traditional forward mortgages have income qualifications and credit scores; whereas the HECM has financial requirements that must be met to ensure adequate resources to maintain the ability to pay property taxes, home owners insurance, and HOA dues, if applicable. The financial assessment may limit some applicants’ ability to qualify, but you don’t know until you try.

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