Reverse Mortgage Self-Evaluation: A Checklist of Key Considerations
Get Your Official Copy of Reverse Mortgage Self-Evaluation: A Checklist of Key Considerations from the NRMLA (National Reverse Mortgage Loan Association)
This checklist was created to help you consider whether a reverse mortgage is right for you. Your HUD-approved reverse mortgage counselor can help you answer additional questions you may have about the loan. You can also find more information about reverse mortgage loans and the loan process onwww.reversemortgage.org, a consumer website created by the National Reverse Mortgage Lenders Association (NRMLA).
A reverse mortgage is a loan that enables homeowners who are generally 62 years of age or older to use part of their homes’ equity to obtain cash proceeds that can be used in many ways. The loan does not have to be repaid until the last surviving borrower or remaining eligible non-borrowing spouse passes away, permanently leaves the home, sells the home, or fails to meet the loan obligations, which include paying property taxes and insurance, and keeping the home maintained.
Nearly all reverse mortgage loans on the market today are federally insured Home Equity Conversion Mortgages (HECMs), though other types of reverse mortgage loans are offered by some states and private lenders. This Reverse Mortgage Self-Evaluation is based on the features and requirements of HECM reverse mortgages but may also be helpful to consumers considering other types of reverse mortgage loans.
Reverse mortgages are a versatile financial tool that over 1.35 million homeowners have used to age in place and for other reasons. However, like any financial product, reverse mortgages should be considered carefully before deciding whether to obtain one.
Questions to Ask Yourself Before Applying
You should ask yourself the following questions before proceeding with your loan application:
- How do you intend to use your reverse mortgage loan proceeds?
- Do you fully understand your obligations as a borrower under a reverse mortgage?
- If you are married, will your spouse be a co-borrower on your loan?
- How will your reverse mortgage loan be repaid?
- Do you receive assistance under any government programs that are based on your current income?
- How long do you, and your spouse, plan to remain in the home?
- Have you considered other strategies to supplement your retirement income?
1. How Do You Intend to Use Your Reverse Mortgage Loan Proceeds?
One of the advantages of a reverse mortgage loan is that borrowers generally have the freedom to use their cash proceeds any way they choose. Eligible homeowners obtain reverse mortgages for many reasons, including:
- Paying off an existing mortgage
- Repairing or modifying the home to meet the physical needs of aging
- Supplementing retirement income to meet expenses
- Managing the costs of in-home care
- Paying bills or property taxes
- Delaying Social Security
- Providing funds for living expenses without liquidating investments
- Establishing a line of credit for a financial safety net
- Helping retirement savings last longer
- Purchasing a retirement home
Do you have a plan for making your reverse mortgage loan proceeds last? Reverse mortgage loans are most successful when borrowers have a plan to ensure the money supports and sustains them for as long as they want to stay in their home.
It is never recommended to use loan proceeds to speculate on real estate or securities or to engage in risky investments. Loan originators are also not permitted to require or encourage borrowers to purchase other financial products, such as annuities or long-term care insurance, as a condition for obtaining a reverse mortgage.
2. Do You Fully Understand Your Obligations as a Borrower?
Reverse mortgage borrowers are not required to make monthly payments to their lender but must continue to meet certain obligations to stay current on the loan. Failure to meet these obligations may result in the loan becoming due and payable.
Borrowers must:
- Live in the property for the majority of the calendar year
- Maintain the condition of the home
- Stay current on all property taxes, insurance, and any applicable homeowner or association fees
- Comply with all other loan terms
Additionally, borrowers’ finances are reviewed to determine if they can sustain the ongoing costs associated with the reverse mortgage. Lenders may set aside a portion of the loan to pay property taxes and insurance premiums if needed.
3. If You Are Married, Will Your Spouse Be a Co-Borrower?
Under HECM reverse mortgage rules, borrowers must be at least 62, named on the home’s title, and use it as their principal residence. Spouses who do not meet these criteria may be identified as either eligible or ineligible non-borrowing spouses.
- Co-borrower spouse survives you: Can continue living in the home and access remaining loan proceeds.
- Eligible non-borrowing spouse survives you: May defer repayment and continue living in the home but cannot access remaining proceeds.
- Ineligible non-borrowing spouse survives you: Cannot defer repayment.
4. How Will Your Reverse Mortgage Loan Be Repaid?
A reverse mortgage is a non-recourse loan, meaning the borrower or estate will never owe more than the loan balance or the home’s value, whichever is less. Loan repayment occurs when the last surviving borrower or eligible non-borrowing spouse passes away, permanently leaves, or sells the home.
Options for repayment include:
- Selling the property and using proceeds to pay the loan
- Using personal funds or gifted money
- Purchasing the property for 95% of its appraised value
- Providing a “deed in lieu of foreclosure”
Borrowers can also prepay all or part of the loan balance at any time without penalty.
5. Do You Receive Government Assistance?
Reverse mortgage proceeds generally do not affect Social Security or Medicare. However, they may impact eligibility for means-tested benefits like Medicaid or Supplemental Security Income (SSI) if retained in bank accounts. Consult a qualified financial advisor or elder law attorney for guidance.
6. How Long Do You Plan to Remain in the Home?
Reverse mortgages involve costs that should be considered relative to how long you plan to stay in your home. Shorter-term plans may make other strategies more cost-effective.
7. Have You Considered Other Strategies to Supplement Retirement Income?
Other ways to tap home equity include:
- Renting out a room or home sharing
- Refinancing an existing mortgage
- Home equity loan or line of credit
- Selling the home or selling and leasing back
Each option has benefits and drawbacks to review carefully.
Next Steps / Counseling
This checklist is designed to help you determine whether a reverse mortgage is right for you. Your HUD-approved reverse mortgage counselor can answer additional questions. More information is available atwww.reversemortgage.org, a consumer website created by the National Reverse Mortgage Lenders Association (NRMLA).
For personalized guidance and to discuss your reverse mortgage options, you can reach out to:
Garrick Werdmuller
President & CEO
Fresh Home Loan Inc.
(510) 282-5456
garrick@freshhomeloan.com
All loan approvals are conditional and not guaranteed and subject to lender review of all information. Loan is conditionally approved when the lender has issued approval in writing, but until all conditions are met, loan cannot be funded. Specified rates and [products may not be available to all borrowers. Rates subject to change according to market conditions and agreed upon lock times set by the borrower. Fresh Home Loan Inc. is an Equal Opportunity Mortgage Broker in California. This licensee is performing acts for which a real estate license is required. Fresh Home Loan, Inc. is licensed by the California Department of Real Estate #02137513 NMLS # 2124104
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