Reverse Mortgage FAQs

Reverse mortgages are becoming more popular as an alternative to traditional mortgages for those over 62 years of age. Reverse mortgages allow senior homeowners to borrow against the equity in their homes, which can provide them with a cash infusion during retirement or other financial challenges.

Throughout the US, there are three major categories of reverse mortgages. The first category includes Home Equity Conversion Mortgages (HECMs). These loans are insured by the Federal Housing Administration (FHA), and are the most common type of reverse mortgage. Other types of reverse mortgage loans include proprietary reverse mortgage loans and single-purpose reverse mortgage loans offered by non-profits, state and local governments.

Here are some frequently asked questions about reverse mortgages:

How do reverse mortgages work?

With a reverse mortgage, a senior can borrow part of the equity of their home as tax-free income. In contrast to regular or “forward” mortgages where the homeowner makes payments to the lender, reverse mortgages involve the lender paying the homeowner.

The loan made by the lender must be paid off when the homeowner moves out of the house permanently or dies.

What are the eligibility requirements for a reverse mortgage?

Must be 62 years of age or older
The homeowner cannot have any federal debt delinquency.
The homeowner must either own the property with no lien or mortgage, or have paid off a substantial amount of any existing mortgage.
The homeowner must show the ability to continue to pay homeowners insurance, property taxes and, if applicable, homeowners association (HOA) fees.
The property must be the primary residence of the homeowner.

How do the types of reverse mortgages differ?

HECMs are the most popular type of reverse mortgage and are the only type backed by the federal government. These mortgages offer a great amount of flexibility in that funds can be used for any purpose. Disbursement can be made as either a monthly payment, a line of credit or both. HECMs typically have higher fees and are offered only by lenders approved by the Federal Housing Administration (FHA). All HECMs require that the homeowner attend an information session presented by a licensed reverse mortgage counselor. There is a limit on home much home equity can be mortgaged by a HECM.

Proprietary reverse mortgages are less regulated, typically have lower fees and are offered by financial institutions like banks and specialist mortgage lenders. Since proprietary reverse mortgages can cover larger amounts than HECMs, proprietary reverse mortgages are often used to cover homes of a higher value.

As the name implies, single-purpose reverse mortgages are offered for a specific reason which could be to make accessibility adaptations to a home or pay off a specific debt. These loans are sponsored by nonprofits and local governments and usually have the lowest fees (and lowest loan limits) of the three reverse loan types.

“[HECM reverse] mortgages offer a great amount of flexibility in that funds can be used for any purpose.”

What are the steps required to take out a Home Equity Conversion Mortgage (HECM)?

Homeowners need to provide the lender the following information in order to obtain an HECM reverse mortgage:

Statement showing current income and any outstanding debt.
If applicable, a copy of the homeowner’s mortgage statement and proof of active mortgage insurance.
A copy of the homeowner’s credit report.
A copy of the homeowner’s driver’s license.
A copy of the previous year’s federal tax returns.
A copy of the house’s title deed.
A completed HECM application and HECM agreement

What are the fees associated with HECM mortgages?

Homeowners who take out a HECM can expect to pay the following fees:

Mortgage insurance premiums (MIPs) – Often financed into the value of the loan, homeowners pay an initial MIP of 2% at closing and an annual .5% of the loan amount on an annual basis.

Origination fee – Homeowners can expect to pay between $4,000 and $6,000 to cover the costs of the lender processing the loan application.

Servicing fees – Lenders are allowed to assess a monthly fee of up to $35

Should I get a reverse mortgage?

A careful analysis should be taken to determine if it makes sense for you to get a reverse mortgage. If you own most of the equity in your home and or over 62 a reverse mortgage can be the best option for you since it comes with the following benefits:

You won’t need to make monthly payments toward your loan balance
Your spouse can continue to live in the home if you pass away, even if they are not listed on the mortgage
A reverse mortgage can be used to avoid foreclosure on a home and/or to pay off an existing forward mortgage
Your home can still be passed on to the next generation

However, you may want to consider:

As a borrower you will still be required to maintain the home, pay property taxes, insurance and cover other costs associated with home ownership
The fees and interest rates associated with reverse mortgages are significantly higher that those of forward mortgages
Tightening your monthly budget, selling down to a smaller home and refinancing your home are alternatives that may achieve similar results at a lower cost to you

Contact an experienced mortgage professional to ensure that you understand the pros and cons of reverse mortgages and can decide if a reverse mortgage is right for you.

Intercontinental Ultimate Solutions

Intercontinental Ultimate Solutions is an experienced reverse mortgage broker with access to a variety of safe and secure reverse mortgage loans to senior home buyers in Intercontinental Ultimate Solutions is an experienced alternative mortgage broker with access to a variety of mortgage options for self-employed and unemployed home buyers in Florida, Arizona, California, Colorado, Connecticut, California, Maryland, North Carolina, South Carolina, Texas, Virginia and New Jersey. With over 20 years of experience in the industry, Intercontinental Ultimate Solutions knows how to get you the best mortgage loan for your needs. With over 20 years of experience in the industry, Intercontinental Ultimate Solutions knows how to get you the best reverse mortgage loan for your needs.

If you’re interested in a reverse mortgage loan, be sure to contact Intercontinental Ultimate Solutions today! Our team of experts will be able to help you find the ideal option based on your situation.