Options to Pay for Home Care: Reverse Mortgage

When a reverse mortgage is being explored as an option to pay for care at home, it is beneficial to better understand how these types of non-traditional mortgages work.

• What is a reverse mortgage? A reverse mortgage is a special type of home loan that lets the owner convert a portion of the equity in the home into cash. The equity that is built up over years of home mortgage payments can be paid to the owner. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. FHA’s HECM provides these benefits.
• Who qualifies for FHA’s Home Equity Conversion Mortgage (HECM) reverse mortgage? To be eligible for an FHA HECM, the FHA requires that homeowners be at least 62 years of age, own their home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and they must live in the home. They are further required to receive consumer information from an approved HECM counselor prior to obtaining the loan. Contact the Housing Counseling Clearinghouse at (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of local FHA approved lenders.
• Can a person apply if he didn’t buy his present house with FHA mortgage insurance? Yes. That doesn’t matter. The new FHA HECM will be FHA-insured.
• What types of homes are eligible? To be eligible for the FHA HECM, the home must be a single family home or a 1–4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
• What’s the difference between a reverse mortgage and a bank home equity loan? A reverse mortgage is different from a home equity loan in that it pays the borrower, and is available regardless of current income. The amount available to borrow depends on the borrower’s age, the current interest rate, and the appraised value of the home or FHA’s mortgage limits for the area, whichever is less.

Generally, the more valuable the home is, the older the borrower, the lower the interest, and the higher the amount available to borrow.  

With HECM, payments are not made because the loan is not due as long as the house is the principal residence. Like all homeowners, borrowers are required to pay real estate taxes, insurance, and other conventional payments like utilities.

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