Reverse Mortgage Pros And Cons
A reverse mortgage, or HECM, is an FHA-insured loan for homeowners 62 and older. It has real strengths and real limits. The limits come first below, then the strengths, each with the rule behind it.
Quick answer
On the HECMs Saxton Mortgage offers, the main advantages are no minimum credit score and non-recourse protection: you or your estate will never owe more than the loan balance or the home’s value, whichever is less. The trade-offs: you must keep paying property taxes and insurance and keep the home repaired, no second loan can stay behind the HECM, and the program is not offered in Massachusetts or North Carolina.
The limits to weigh first
Each limit below is an FHA rule for the HECM or a requirement of our reverse mortgage program.
- It costs money to get. Fees and charges tied to setting up the loan are required for approval and are paid at closing or during the first 12 months. You may also pay for a second appraisal if one is required.
- Less money in the first year. On an adjustable-rate HECM, a first-year limit caps what you can take at closing and during the first 12 months. A fixed-rate HECM pays one lump sum at closing, with no later draws except from a set-aside made at closing.
- Set-asides reduce your funds. Amounts held back for servicing fees, repairs after closing, a life expectancy set-aside or first-year property charges come off what you can use. A financial assessment decides whether a life expectancy set-aside is required.
- The bills stay yours. Property taxes, hazard and flood insurance, HOA and condo dues and similar charges remain your obligation. If the servicer finds the home has deteriorated, you get 60 days to begin repairs.
- The loan can come due. It becomes due automatically if a borrower dies, the home is no longer the principal residence of a surviving borrower, and there is no deferral period for an eligible non-borrowing spouse. It also becomes due automatically if a borrower conveys all title and no other borrower keeps title. With HUD’s approval, it can be called due if a borrower is away more than 12 consecutive months because of physical or mental illness and no other borrower lives there, or if any loan obligation is not met.
- Fewer choices with the home. The HECM is not assumable. Our program does not allow subordinate financing, such as a second loan behind the HECM, and the home cannot be vested in an irrevocable trust.
It costs money to get
Less money in year one
Set-asides reduce your funds
The bills stay yours
The loan can come due
Fewer choices with the home
How To Weigh Both Sides
You do not weigh this alone. FHA’s HECM rules and our program build three checks into the process: counseling, a cost and benefit analysis, and a financial assessment.
Counseling comes first. It must be done by a HUD-approved HECM counselor, and our program begins processing your application only after counseling is complete, shown by a signed and dated counseling certificate. The lender must also give you an analysis of the cost of a HECM versus its benefits, so you can make an informed decision about whether it meets your needs. Estate planning services are not needed to get a HECM and cannot be paid from loan proceeds.
The financial assessment documents and verifies your credit, income, assets and property charges, and reviews your credit and property charge payment history. Based on the results, a partially or fully funded life expectancy set-aside may be required. It is withheld from your proceeds to pay future property charges. If a residual income shortfall cannot be offset by compensating factors or a fully funded set-aside, the HECM cannot be approved.
Then you choose how the money comes. A fixed-rate HECM pays one lump sum at closing. An adjustable-rate HECM offers five payment plans, and you can change to another plan at any time while funds remain. One of them is a line of credit you draw from at times and in amounts you choose, covered on our reverse mortgage line of credit page. The lender cannot require any draw above a minimum amount.
The strengths to weigh next
Each strength below is an FHA rule for the HECM or part of our program, with its conditions attached. This page is for homeowners 62 and older and their adult children.
Insured By FHA
FHA insures fixed-rate HECMs as well as annual and monthly adjustable-rate HECMs. You can use one to refinance the home you own or to buy a new principal residence. That insurance does not remove your obligations, and the loan can still come due, as listed above.
Non-Recourse With Conditions
You or your estate will never owe more than the loan balance or the value of the home, whichever is less, and no assets other than the home must be used to repay the debt. The loan can still come due, as listed above. When it comes due after a death, heirs can resolve it by selling the home for at least the lesser of the balance or 95 percent of the current appraised value.
No Maximum Age
Every borrower must be at least 62 at closing, and there is no maximum age limit. A non-borrowing spouse does not have to be 62.
Choice Of Payment Plans
The adjustable-rate HECM offers five payment plans, including a line of credit. You can switch to another plan at any time while funds remain.
Principal Limit May Increase
On an adjustable-rate HECM, FHA’s HECM rules say the principal limit may increase monthly, with restrictions on drawing those funds during the first 12 months. A fixed-rate HECM pays one lump sum at closing, with no later draws except from a set-aside made at closing. No amount of increase is promised.
Spouse Deferral With Conditions
An eligible non-borrowing spouse may be able to defer the due and payable status after the last borrower dies. Every condition must be met, including being married to the borrower at closing and for the rest of the borrower’s lifetime, being named in the loan documents, and living in the home as a principal residence.
Hear From Homeowners Like You
Frequently Asked Questions
Straight answers on whether a HECM fits, including who it may not fit.
On the HECMs Saxton Mortgage offers, the main advantages are no minimum credit score and non-recourse protection: you or your estate will never owe more than the loan balance or the home’s value, whichever is less. The trade-offs: you must keep paying property taxes and insurance and keep the home repaired, no second loan can stay behind the HECM, and the program is not offered in Massachusetts or North Carolina.
It may not fit someone who will not live in the home as a principal residence. The home must be the principal residence of each borrower, and a borrower may have only one at a time. It may not fit someone who wants a non-occupant co-borrower or wants to hold the home in a business, since our program does not allow either. It also may not fit someone who cannot keep up property taxes, insurance and repairs, because those remain your obligations.
Yes. HUD requires a financial assessment for each prospective borrower. It documents and verifies credit, income, assets and property charges, and reviews your credit and property charge payment history. A new credit report is pulled on every loan in our program.
No. Subordinate financing is not allowed in our program. HUD also says only debts attached to the home can be paid at a HECM closing. Other debts, such as revolving or installment debts, cannot be paid off at closing.
Not in an irrevocable trust or a business. With our program, the home cannot be vested in the name of an irrevocable trust. Blind trusts, irrevocable trusts and businesses, including partnerships and corporations, are not eligible borrowers. Our reverse mortgage trust page covers what can work.
No. A fixed-rate HECM is limited to one lump sum at closing, with no later draws except from a set-aside made at closing. The line of credit is one of the five payment plans on the adjustable-rate HECM.
Not through our program. Our reverse mortgage program does not accept loans in Massachusetts or North Carolina, and our fixed-rate HECM is not offered in Utah.
Yes. The lender must accept a prepayment of a HECM in whole or in part without penalty. The HECM also does not have a fixed maturity date.
Find out what you qualify for
Tell us about your home, who lives there and what you hope the money will do, and we will go over both sides with you before you schedule counseling.
Get Pre-Qualified- U.S. Department of Housing and Urban Development, FHA and housing resources
- U.S. Department of Housing and Urban Development, FHA mortgage insurance premiums
Loan amounts, rates, terms, and eligibility are subject to credit approval, asset and income verification, appraisal, and program guidelines. Program availability varies by state. Not all applicants will qualify. Saxton Mortgage, LLC is an Equal Housing Lender.