As an often misunderstood financial tool, there is plenty of confusion about what reverse mortgages are and how they work. Here are some reverse mortgage facts that may surprise you.
Reverse Mortgage Borrowers Report Higher Financial Satisfaction.
A 2018 Journals of Gerontology survey of 1,088 adults over 65 found that HECM borrowers surveyed had higher financial and housing satisfaction three to five years after getting a HECM than their nonborrower counterparts who received HECM counseling but opted not to get the loan.
Source: The Relationship Between Reverse Mortgage Borrowing, Domain, and Life Satisfaction
Reverse Mortgage Borrowers Have Fewer Complaints
Reverse mortgage complaints to the Consumer Financial Protection Bureau (CFPB) were less than 1% of 32,000 mortgage–related complaints received in 2021. Of the complaints against various mortgage loans, 65% were against traditional mortgages. The remaining complaints were against other home types of loans like VA, home equity, and line of credit.
Source: Consumer Financial Protection Bureau March 2022 Consumer Response Annual Report
Seniors Have Substantial Amounts of Home Equity.
As of January 2023, the National Reverse Mortgage Lender Association determined that seniors have an estimated 11.8 trillion dollars in home equity.
Source: National Reverse Mortgage Lenders Association and Risk Span
Most Reverse Mortgage Borrowers Choose a Line of Credit.
According to the Federal Deposit Insurance Corporation, in 2021, over 90% of HECM borrowers opted to take either part or all of their proceeds as a line of credit.
Source: US Department of Housing and Urban Development Annual Report 2021
Reverse Mortgages Have Been Around for Over Six Decades.
The first reverse mortgage was issued in 1961 in Portland, Maine, by Nelson Haynes to the widow of a high school football coach. Home equity conversion mortgages (HECM) have evolved since the first reverse mortgage with increased legislation and protections for consumers.
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You Will Never Owe More on a HECM Than the Value of the Home
Home Equity Conversion Mortgages are non-recourse. This means borrowers or their heirs will never owe more than the home’s market value when it is sold to satisfy the loan. Reverse mortgage borrowers or their heirs never need to fear a lender pursuing other assets to satisfy the loan, even if the home depreciates.
Third-Party Counseling Is Mandatory for all Reverse Mortgage Borrowers
The U.S. Department of Housing and Urban Development (HUD) requires all reverse mortgage borrowers to participate in counseling as a condition of applying for a loan. The purpose of this session is to help consumers understand the loan terms and ask questions about the reverse mortgage.
Reverse Mortgage Borrowers Aren’t Required to Make Monthly Mortgage Payments
With a reverse mortgage, borrowers are not required to make monthly mortgage payments but are required to pay property taxes and insurance, as well as maintain the home.
Reverse Mortgage Borrowers Can Receive Loan Proceeds Five Ways
Reverse mortgage borrowers have flexibility in how they can receive their loan proceeds. The following are ways that borrowers can choose to receive their proceeds.
- Lump sum. You receive a single disbursement and are entitled to only 60% of the principal limit in the first year.
- Fixed monthly payment. Borrowers will receive a fixed monthly payment based on an agreed term.
- Line of credit. The borrower has the option to borrow funds at a later date. The line of credit grows even if the home value decreases. The borrower is responsible for repaying only what was borrowed.
- Modified term with a line of credit. The borrower receives a fixed monthly payment for a specified time and establishes a line of credit.
- Modified tenure with a line of credit. The borrower receives a fixed monthly payment as long as they live in the house and can establish a line of credit. The monthly payments and line of credit will continue only if the borrower doesn’t default on the loan.
A Reverse Mortgage Line of Credit Can Grow
Many people must know that a line of credit in a reverse mortgage is a great option for borrowers. Since HUD guarantees HECMs, lenders may not reduce, revoke, or freeze the line of credit. An added benefit is that the borrowing power in the line of credit can grow at the same rate as the interest, less the annual mortgage insurance premium (MIP) charged to the loan (0.50% of the principal). Even if the borrower’s home decreases in value, the mortgage line of credit will continue to grow at the same rate.
Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
