How Does a Reverse Mortgage Work?

How Does a Reverse Mortgage Work?









As we age and prepare for retirement, financial security becomes a top priority. If you’re 62+ years old, a reverse mortgage may be a solution to explore. Discover how a reverse mortgage works, its features and benefits, and common myths surrounding the loan program:


What is a Reverse Mortgage?

A reverse mortgage loan is insured by the Federal Housing Administration (FHA) and is part of the Home Equity Conversion Mortgage (HECM) program. A reverse mortgage is only available to homeowners who have built up considerable home equity and are 62+ years old.


Reverse Mortgage Benefits

Some of the benefits a reverse mortgage loan program offers includes:


  • Helping you to age in-place, relocate to a different region, or move closer to family.
  • Aid you in moving into a more affordable home that requires less maintenance or that better serves your physical needs by providing features such as handrails, wider doors, or a single-story layout.
  • Provides great freedom in retirement – you aren’t restricted on how you can use the loan proceeds and it is non-taxable income.
  • A reverse purchase can help you to retain your savings, improve your monthly cash flow, and/or finance a purchase that would normally be beyond your budget.


Features of a Reverse Mortgage

In addition to meeting program requirements, it’s vital to understand the features of a reverse mortgage:


  • Closing costs may be financed requiring limited upfront fees.
  • Funds available may be limited for the first 12 months after the loan is opened per HECM rules.
  • Fixed-rate and variable-rate programs are available with the fixed-rate loan option requiring all proceeds to be accessed at inception.
  • Property may be single-family homes, 2–4-unit owner-occupied homes, FHA-Approved condos, or a manufactured home.
  • The amount available to the borrower is based on the age of the youngest borrower, the interest rate of the loan, and the property value up to the maximum FHA lending limit.



Qualifications for a Reverse Mortgage

Requirements for a reverse mortgage loan include:


  • Borrowers must be 62+ years old.
  • Borrowers must qualify to pay taxes, insurance, or HOA, if applicable.
  • Borrower must have financial resources to pay ongoing property fees.
  • Borrower and non-borrowing spouses are required to receive independent counseling before obtaining loan.
  • You can own your home outright or have a low balance on your mortgage that can be paid off at closing with proceeds from the reverse loan.



The Keys Unlocked

  • You keep the title to your home and own the equity. The lender does not down your home.
  • Proceeds from your reverse mortgage may be used for any purpose. Your money, your choice.
  • You can pay off your existing mortgage and eliminate your monthly mortgage payment. It’s not necessary to own your home free and clear.
  • Money received from a reverse mortgage is not taxable. Advances on your reverse mortgage are loans, not income, and not taxable as income.
  • You’ve worked hard for your home, it’s okay to let it work for you. Proceeds from a reverse mortgage can help to preserve cash assets, remodel your home, delay Social Security, purchase your next home with no monthly mortgage, anything on your wish list.


When evaluating your retirement journey, contemplate your needs and goals. No matter the path you choose, it’s important to work with experienced experts who will walk alongside you. Give our team a call at 757-366-8690, we’d be honored to schedule a time to chat.