A home sits on a pile of money, with a trail of pennies leading up to a piggy bank. A hand is dropping a penny into the bank, representing reverse mortgages.

What is a Reverse Mortgage?

If you’re having trouble paying for your mortgage, you may qualify for a reverse mortgage.

This blog explains what is a reverse mortgage, the different types, how to qualify, how to repay your loan, and whether you can cancel a reverse mortgage.

What is a Reverse Mortgage?

A reverse mortgage is a loan that is only available to homeowners aged 62 or older. Reverse mortgages allow homeowners to convert their home equity into cash without having to make monthly mortgage payments. These loans use your home as security for the loan, but you can still keep the title to your home and can still live in your home.

Different Types of Reverse Mortgages

There are several types of reverse mortgages available. It is important to learn about your options and decide what type would be best for you, based on your situation.

Home Equity Conversion Mortgages (HECMs)

These are the most common type of reverse mortgage loans and are insured by the federal government. Borrowers do not need to meet any income requirement or minimum credit score to qualify for a HCEM.

Mortgage insurance premiums will be the same among lenders but other costs associated with reverse mortgages, such as interest rates or closing costs, will vary lender by lender. It is important to look into all of your options before choosing your lender. Borrowers can use the money received from the reverse mortgage for any purpose.

Single-Purpose Reverse Mortgages

State or local governments and non-profit organizations also may offer single-purpose reverse mortgage loans to homeowners in certain areas. These loans are not insured by the federal government. A single-purpose reverse mortgage limits the use of the loan money. Homeowners may only use the loan for the express purpose specified by the government or nonprofit lender. These are the least expensive reverse mortgages.

Propriety Reverse Mortgages

Lenders may also offer proprietary reverse mortgage loans. These loans are offered by private companies and are not insured by the federal government. They are sometimes called jumbo reverse mortgages, because the home is valued at more than the limit set by the government and the loan would be higher than the federally-insured reverse mortgage can be.

How to Qualify for a Reverse Mortgage

Borrowers must meet several qualifications:

  • The reverse mortgage must be on the house you live in for the majority of the year.
  • Your home must be in good shape.
  • You must either have a low mortgage balance or no mortgage.
  • You must be in good standing on any federal debt that you currently have. Federal debt can include federal income taxes and federal student loans.
  • You must agree to set aside a portion of the money you receive from your reverse mortgage loan to pay for ongoing property charges, including taxes, insurance, maintenance, and home repair costs.
  • You must have a counseling appointment with a reverse mortgage counseling agency approved by the U.S. Department of Housing and Urban Development (HUD), about the financial implications and alternatives of a reverse mortgage on your home.

How to Repay Your Loan

If you take out a reverse mortgage loan, you will not need to make monthly loan payments. But, you will still need to pay your annual mortgage insurance premium and your homeowners’ insurance.

Keep in mind – the interest and fees will increase on your loan each month. The amount of money you owe to your lender will only increase over the length of the loan. As the money you owe on your loan increases, it will decrease the value of your home.

Borrowers will need to repay the entire loan balance when the borrower sells the home, the home is no longer the principal residence of the borrower, or the last surviving borrower dies.

Remember that the amount you will be required to pay on your loan over time will only increase as time passes! It is important to discuss all of your options with the HUD reverse mortgage counselor.

You Can Cancel – But Cancel Quickly!

If you change your mind and decide a reverse mortgage is not for you, you can cancel without any penalty if you do so within three business days. You will need to send your notice of cancellation to your lender in writing for it to count. It is a good idea to thoroughly document all of your interactions with your lender – including any mail receipts if you send the cancellation by mail. Your lender must return any money you paid to finance the loan within 20 days of your cancellation.

Beware of Scams

There are many reverse mortgage scams that target seniors. It is important to research your options and take your time making a decision on a reverse mortgage. If you feel pressured by a lender, walk away. It is better to be careful than fast, when deciding if, or which, reverse mortgage is best for you.

For more information about managing finances after a cancer diagnosis, visit TriageCancer.org/Financial.

About Triage Cancer

Triage Cancer is a national, nonprofit providing free education to people diagnosed with cancer, caregivers, and health care professionals on cancer-related legal and practical issues. Through eventsmaterials, and resources, Triage Cancer is dedicated to helping people move beyond diagnosis.

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