Some key features include:

• No Monthly Mortgage Payments: While you still pay property taxes, insurance, and maintain the property, no monthly mortgage payments are required.

• Flexible Payout Options: You can convert your home’s equity into cash through monthly payments, a lump sum, or a growing line of credit.

• Tax-Free Proceeds: The proceeds you receive are typically tax-free (consult your tax advisor for specific advice).

• Borrower Protections: Features like limits on initial equity access and requirements for demonstrating ability to pay taxes and insurance help reduce foreclosure risk. Furthermore, if a non-borrowing spouse under 62 outlives or is permanently separated from the borrowing spouse, they may remain in the home if they comply with loan terms.

• Growing Line of Credit: If you choose a line of credit, interest only accrues on funds you use. Unused funds grow over time at the same rate as your loan, increasing the cash accessible to you later.

• Non-Recourse Loan: For Reverse Mortgage, your heirs are not liable if your home sells for less than the loan balance. Only the sale proceeds are used to repay the loan.

• Existing Mortgage Payoff: You don’t need to pay off your current mortgage before applying. However, any existing mortgage or liens must be paid off with the reverse mortgage loan proceeds at closing. For any reverse mortgage you are still responsible for property taxes, home insurance and HOA, fees if any.

•  Second Loan Option: If you want to keep a very low-rate mortgage on your home and still want to draw funds from your home equity, there is the option of a reverse second loan. This loan has all the features of a traditional reverse mortgage without the mortgage insurance fee. It only allows a lump sum distribution at the close of the loan. It is often a better option that a conventional home equity loan.

Home Eligibility for Reverse Mortgage Loans

Eligible homes include single-family homes, detached homes, townhouses, and owner-occupied two-to-four unit properties. Condominiums must be FHA-approved for HECM loans, and some manufactured homes may also be eligible. Contact The Friendly Lender for specific details on manufactured home eligibility.

Repayment: When does the loan come due?

If you have a reverse mortgage and meet the loan terms (such as living in the home as a primary residence, paying taxes and insurance, and maintaining the property), you will not have to repay the lender even if your home is worth less than the loan balance. The loan becomes due and payable when the last surviving borrower (or any non-borrowing spouse) moves out of the home, the home is sold, or loan terms are not met. At that point if the loan balance is more than the home is worth, you or your heirs would not be responsible for the shortfall (see next section).

Impact on Your Estate and Heirs

When the last surviving borrower passes away, sells the home, or no longer lives there as a primary residence, you or your estate are responsible for repaying the money received from the reverse mortgage, plus accrued interest and fees. Any remaining equity belongs to you or your heirs. The “non-recourse” clause in reverse mortgage ensures that your estate is never responsible for more than the home’s value. If the loan balance exceeds the home’s value, heirs can either sign a deed in lieu of foreclosure or retain the home by paying 95% of the home’s appraised value (minus customary closing costs and real estate commissions).

Should You Use an Estate Planning Service to Find a Reverse Mortgage?

HUD advises against using services that charge a fee (other than the required HECM counseling fee) or request a lender referral fee to obtain a reverse mortgage. HUD provides free information and can direct you to approved housing agencies that offer counseling or other services for free or at minimal cost.

A HECM counseling fee typically ranges from $125 – $200. This fee may be waived for qualified applicants by some counseling agencies. You can find a HUD-approved housing counseling agency by calling 818-640-1061 toll-free.

Options for Receiving Loan Proceeds

For a reverse mortgage loan with a fixed interest rate, you receive a lump sum payment.

For reverse mortgage line of credit with an adjustable interest rate, payments can be received in one of five ways:

• Tenure: Equal monthly payments for as long as you live in the home.

• Term: Equal monthly payments for a fixed period you choose.

• Line of Credit: Funds available to draw on as needed, in varying amounts.

• Modified Tenure: Monthly payments combined with a line of credit.

• Modified Term: Monthly payments for a fixed period combined with a line of credit.

Reverse Mortgage vs. Home Equity Loans or Lines of Credit (HELOC)

Reverse mortgages are unique because they allow you to receive loan proceeds without requiring immediate repayment, as long as you meet the basic income/credit standards, maintain the home as your primary residence, and comply with loan guidelines.

In contrast, a traditional home equity loan or HELOC requires you to have sufficient income to cover monthly principal and interest payments. With a reverse mortgage, you meet basic income and credit guidelines but do not make those monthly payments. Remember, you are still responsible for property taxes, homeowner’s insurance, and maintaining the property