A Reverse Mortgage makes it possible to access a portion of the equity in your home, without selling your home, giving up ownership or making monthly payments (but you must continue to pay property taxes and home owner’s insurance). Rather than paying money into your home, the lender pays YOU money, releasing some of the equity that you have built up over the years. You may still qualify for a Reverse Mortgage if you currently have another loan on the home. But a Reverse Mortgage requires you to pay off any existing mortgages before providing additional cash to you. “Financial Assessment” is now part of the qualifying process for both the government-insured loans and proprietary/jumbo loans. Financial assessment looks at income, past payment practices of home related expenses (property taxes and home owner’s insurance) as an indicator of future “willingness” and “capacity” to sustain your obligations after the loan is in place. The loan amount for which you qualify (called the “Principal Limit”) generally depends on four factors:

Four Factors for Reverse Mortgage Qualification

  • the age of the youngest borrower on title to the home
  • the interest rate for the type of loan requested
  • and for the HECM loan, the lesser of the appraised value of your home or the national lending limit set January 1, 2021 at $822,375.
  • for proprietary/jumbo loans, the appraised value OR the lesser of two appraisals when the home is valued at $2,000,000 or above

If you are 92 years old, you will qualify for more than if you are just 62 years old. Available loan proceeds vary with the type of loan. For HECM fixed rate loans, the borrower must take all proceeds available at close as a lump sum, but are restricted to “mandatory obligations” plus 10%. For adjustable rate loans, the available loan proceeds can be paid to you in a cash advance, a fixed amount per month (“term”), equal monthly payment for as long as you occupy your home (“tenure”), a line of credit (to withdraw money on an as-needed basis), or a combination of these choices. However, depending on the value of your “mandatory obligations”, you may be limited to draw no more than 60% of the Principal Limit in the first year of the loan. Most importantly, it is always your home – the title always remains in your name. You are not obligated to make any mortgage payments while living in the home. Instead, interest is added to the loan and paid when you sell or move out of the home. The loan is due and payable if you have failed to comply with the loan terms (property tax and home owners insurance payments, for example) or when when the last borrower or eligible non-borrowing spouse leaves the property. If the property is bequeathed, your heirs can either sell the home or refinance the home and pay off the mortgage.