A reverse mortgage loan is secured by your home, but you don’t have to make any payments. In fact, you can receive payments. And, the loan does not have to be paid back until you sell the home or the last borrower permanently leaves the home. You can make payments if you choose, but you’re not obligated to.

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As an example, your $1,000 a month normal mortgage payment is freed up for other purposes. These may include more cash month-to-month, renovating your home, or even buying a new one.

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You are required to continue paying taxes, homeowners insurance, and HOA fees even if you opt not to make mortgage payments. You’ll also be responsible for maintenance and repairs on the property.

Reverse mortgages are available to borrowers age 62 and over for the government-insured Home Equity Conversion Mortgage (HECM) and who live in the property as their primary residence.  (While eligible spouses under the age of 62 can be covered by the terms of the loan, they are not actually borrowers on the HECM reverse mortgage.)

1.  Speak with Zion Home Loans about your options

We understand that the reverse mortgage can be challenging to understand and there are legitimate questions as to how it works. We can answer your questions and assess whether this is the right program for you.

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2.  Conduct your HUD counseling  

If you think you are going to get a reverse mortgage, book a counseling appointment with a HUD-approved counselor right away and complete the counseling session. You need the certificate they provide in order to proceed with the loan process. During your counseling session (which can be in person or on the phone), topics such as these will be discussed:

• how reverse mortgages work and their implications

• the appropriateness of a reverse mortgage for their personal and financial situations, and

• possible financial alternatives to reverse mortgages.

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3.  Complete loan application

The reverse mortgage application is a lengthy application and requires many borrower signatures.  One of the recent innovations though, is the ability for borrowers to use electronic signatures rather than having to hand-sign every document.  This allows a lender to send you a package through email that you can open, review and “click” for your acceptance (but it does not replace your need to review the documents carefully).

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Once the lender receives your completed package, they will process your loan request which includes ordering your title review, order the appraisal and once completed, have the loan underwritten.

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3.  Close your loan

Your processor will schedule a time to have a Notary visit you at your home or location of your choice where you can sign all your loan documents.  Because the loan is considered a refinance transaction (unless you are using your reverse mortgage to purchase a property), there is a 3-day right of rescission required by law.

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After the right of rescission period is over, the closing agent will wire your funds directly to your bank account for same day availability of funds.

Lump Sum Payment

The borrower chooses to take all the funds at closing in one lump sum draw. This is mostly used with purchase transactions when all the funds are needed to buy the home.

Line of Credit

This is the most common option wherein the borrower can take a draw up to their maximum available amount, but can also choose any other amount, as well and leave the remaining funds in a line of credit to be used as they desire.

Tenure Payment

A Tenure payment is a payment for life.  The HUD calculator determines the payment amount you receive based on your value, age, and interest rate.

Term Payment

The borrower chooses the amount of the payment they want rather than letting the calculator make the decision based on the amount to be paid for life.  The payment might only last for a few years in this choice but that might be all the borrower needs until another income stream kicks in.

Modified Option

The modified option is when you combine any of the options above.  I.e., you choose to set part of the line aside for use as a line of credit for repairs but then use the rest of the line for a tenure payment.

Initial Disbursement Limit

HUD limits the amount that any borrower can take in the first 12 months based on their mandatory obligations.  If you are not repaying qualified existing liens on the property or using the loan to purchase the home, you are limited to 60% of the Principal Limit in the first 12 months and then you can receive the remaining 40% of your proceeds any time after 12 months.  However, the fixed rate loan program is a single draw option.

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Therefore, if you choose the fixed rate program and your initial disbursement limit gives you less money at the close, you can never draw the remainder of the funds as you can after 12 months with the adjustable-rate line of credit program.

A reverse mortgage can help you live more comfortably in your current home if you plan to age in place. But you can also use the HECM for Purchase option to buy a new primary home. With the HECM for Purchase, a lender will finance up to a certain amount as a reverse mortgage. You’ll make up the difference with a down payment. This can be a good move if you plan to sell your current home and rightsize into something new in retirement.

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Let’s say you sell your current home for $300,000 and plan to buy a $200,000 home elsewhere. You put down $100,000 using money from the sale, and you take out a HECM for the remaining $100,000. Now you have $200,000 in cash left over from the sale, plus a reverse mortgage that doesn’t require you to make monthly payments.

The reverse mortgage loan balance comes due when the homeowners move or pass away. Repayment can be

completed with a home sale or by releasing the property back to the lender. If passed down, the heirs will never owe more than the home's appraised value.** If the value is less than the loan balance, they will owe up to 95% of the appraised value or they can release it to the lender.

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**There are some circumstances that would cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home.