Reverse mortgages are available to homeowners who are at least 62 years old and own their homes. Any outstanding balances must be paid off from equity in the house, and the house must be your principal residence. As part of the qualification process, applicants are assessed financially to determine their financial capacity and willingness to pay obligations.
How much a lender will loan you depends on how old you are at the time of closing, how much your house is worth, how many liens you have, and what the interest rate is. The amount of money that you receive will depend on the amount of money you pay off your existing mortgage and other mandatory obligations as well as the payment method you select. Borrowers are limited by HUD to using 60% of the available funds (after closing costs & fees) in the first year. The remaining funds become available in year two. According to HUD, the maximum disbursement limit is equal to the GREATER of:
You can choose from a variety of options. The money can be withdrawn in a lump sum (up to HUD’s maximum withdrawal amount for the first year)*, set up as a line of credit, a monthly payment, or a combination of all three. The Line of Credit or monthly Tenure Payments or monthly payments cannot exceed 60% of the Principal Limit in the first year. As soon as possible, the Line of Credit or Tenure/Monthly Payment will increase after the first year.
With a fixed interest rate reverse mortgage, you can only make a single payment in a lump sum.
A reverse mortgage’s fees and cost depend on a variety of factors. On HECMs, for example, the broker/lender receives an origination fee, FHA receives a mortgage insurance premium, and title, settlement, and escrow fees are paid. There are no hidden costs in the Good Faith Estimate (GFE). Service fees may be charged monthly.
At closing and throughout the term of the loan, an FHA Mortgage Insurance Premium (MIP) must be collected. Mortgage insurance premiums are added to the borrower’s loan balance. MIP (Mortgage Insurance Premium) is calculated based on the appraised valuation of your home or a maximum amount of $970,800 (the 2022 national lending limit cap) and is charged at closing. Each month’s FHA insurance premium is determined by the outstanding loan balance.
Yes. To protect borrowers from receiving incorrect information about reverse mortgages, borrowers must receive counseling from an independent third party HUD-approved counselor. Before closing the loan, the lender must receive the counseling certificate. Contact your local HUD office or Mortgage Loan Originator to locate a reverse mortgage counselor near you.
Reverse mortgage proceeds are typically not subject to individual income taxation, but you should consult with your tax advisor.
Reverse mortgages were created so borrowers can avoid paying most fees while they have the loan. A reverse mortgage appraisal is usually free, but some agencies waive the counseling fee. In spite of that, reverse mortgages may be accompanied by a monthly servicing fee (which is financed and added to the balance of the loan). For more information on the service set-aside, please talk to your Mortgage Loan Originator.
AARP free information on reverse mortgages
The Consumer Financial Protection Bureau (CFPB) Consumer Lookup
Housing Counseling Clearinghouse
The Eldercare Locator: Local Resources for Older Adults
Federal Trade Commission (FTC) to report possible fraud
Phone: 1-877-FTC-HELP (1-877-382-4357)
National Council For Aging Care
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