A reverse mortgage is a loan product that allows senior homeowners to convert home equity into cash. Most reverse mortgages are provided by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program.
With a reverse mortgage, you receive money from your mortgage company as a loan secured against the equity in your home. The money is paid to you in a lump sum, through a line of credit, or as monthly payments. Fees and interest are charged on the loan amount (or “loan proceeds”); therefore, over time the loan balance increases and your home equity decreases.
A reverse mortgage lets you use the value of your home to provide a source of income while allowing you to stay in the home. It may be an effective way to benefit from the money you’ve invested in your home over the years.
Having a reverse mortgage, you are required to:
- Pay your property-related expenses on time. Property-related expenses include: real estate (property) taxes; utilities; homeowner’s (sometimes referred to as “HOA” fees) and/or condo association dues; homeowner’s insurance (also referred to as “hazard” insurance); and flood insurance premiums (if applicable).
- Maintain the property’s condition. You must maintain the condition of your home at the same quality as it was kept at the time you took out the reverse mortgage loan.
- Live in the property as your primary residence. You are required to certify this on an annual basis.
Your reverse mortgage servicer can help you understand your options. These may include:
|Repayment Plan||Used to pay back property-related expenses paid on your behalf by your reverse mortgage servicer. Typically, the amount due is spread in even payments for up to 24 months.|
|Free Counseling From a HUD-Approved Counseling Agency||Your counselor will review your financial situation, may assist you in balancing your budget or finding resources to help you (i.e., finding you sources of income or financial assistance), and work with your servicer to resolve your situation. Your servicer can provide you with more details.|
|Refinancing||If you have equity in your home, you may qualify for a new reverse mortgage to pay off your existing reverse mortgage plus any past-due property-related expenses.|
|Selling Your Home||You may sell your home to anyone, including your heirs, and use the sale proceeds to pay off your reverse mortgage loan.|
|Paying Off Your Reverse Mortgage||If you want to stay in your home, you or an heir may decide to pay off the reverse mortgage by taking out a new loan or finding other financial resources.|
|Deed-in-Lieu of Foreclosure||To avoid foreclosure and eviction, you may decide to complete a Deed-in-Lieu of Foreclosure. This is a voluntary transfer of your property to the owner of your reverse mortgage in exchange for a release from your reverse mortgage obligations. Some relocation assistance may be available to help you gracefully exit your home.|
|Foreclosure||If your loan goes into default, it may become due and payable and the servicer may begin foreclosure proceedings. A foreclosure is a legal process where the owner of your reverse mortgage obtains ownership of your property. Even if you’ve received a foreclosure notice, you may still be able to avoid foreclosure by pursuing one of the options noted above.|
Your reverse mortgage company (also referred to as your “servicer”) will ask you to certify on an annual basis that you are living in the property and maintaining the property. Additionally, your mortgage company may remind you of your property-related expenses—these are obligations like property taxes, insurance payments, and HOA fees. However, these expenses are your responsibility so be sure you’ve set aside enough money to pay for them and make sure to pay them on time.
Not meeting the conditions of your reverse mortgage may put your loan in default. This means the mortgage company can demand the reverse mortgage balance be paid in full and may foreclose and sell the property.
As long as you live in the home as your primary residence, maintain the home, and pay property-related expenses on time, the loan does not have to be repaid. However, if you move or sell the property, the loan becomes due and must be paid off. In addition, when the last surviving borrower passes away, the loan becomes due and payable.
Yes. Your estate or designated heirs may retain the property and satisfy the reverse mortgage debt by paying the lesser of the mortgage balance or 95% of the then-current appraised value of the home.
As long as the property is sold for at least the lesser of the mortgage balance or 95% of the current appraised value, in most cases the Federal Housing Administration (FHA), which insures most reverse mortgages, will cover amounts owed that are not fully paid off by the sale proceeds. No debt is passed along to the estate or your heirs.
Yes, if you have provided your servicer with a signed third-party authorization document authorizing them to do so.
No, reverse mortgages do not allow co-borrowers to be added after origination.
Your reverse mortgage servicer may have resources available to assist you. If you’ve reached out to your servicer and still need assistance, it is strongly recommended and encouraged that you contact a HUD-approved housing counseling agency.
Your counselor will help you review your financial situation and work with your mortgage servicer. In addition, your counselor will be able to refer you to other resources that might assist you in balancing your budget and retaining your home. Ask your reverse mortgage servicer to put you in touch with a HUD-approved counseling agency if you’re interested in speaking with a housing counselor.
If you are contacted by anyone who is not your mortgage company offering to work on your behalf for a fee or claiming you qualify for a loan modification or some other solution, you can report the suspected fraud by calling:
|U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General Hotline||800-347-3735 or email: firstname.lastname@example.org |
|Federal Housing Finance Agency Office of the Inspector General Hotline||800-793-7724 or on the Internet at: www.fhfaoig.gov/ReportFraud |
Even if you are in default, options may still be available. As a first step, contact your reverse mortgage servicer (the company servicing your reverse mortgage) and explain your situation. Depending on your circumstances, your servicer may be able to help you repay your debts or gracefully exit your home. You can also contact a HUD-approved counseling agency for more information about your situation and options to help you avoid foreclosure. Ask your reverse mortgage servicer to put you in touch with a HUD-approved counseling agency if you’re interested in speaking with a housing counselor.
It still may not be too late. Contact the company servicing your reverse mortgage to find out your options. If you can’t pay off the reverse mortgage balance, you may be eligible for a Short Sale or Deed-in-Lieu of Foreclosure.