Reverse Mortgages
and Today’s Senior Homeowner
By Joyce Kuhn

For many senior homeowners, the primary source of income is Social Security, followed by assets, and then pensions. The asset with the highest value is often the senior’s home. Most seniors want to stay in their home for as long as possible, so selling the home to access the equity is not an option. The answer may be a reverse mortgage.

Basic Eligibility Requirements
The first question is, “How do I qualify for a reverse mortgage?” To qualify you must be at least 62 years old. This age requirement applies to all owners whose name appears on the title to the home. The second qualifier is the equity in your home. You may qualify for a reverse mortgage even if you have an outstanding balance on your first mortgage or a home equity line of credit. If this is the case, the balance of the outstanding loan is paid with the proceeds from the reverse mortgage.

How Much Money Can You Get?
That leads us to the second question: “How much money can I get?” The answer is based on a formula governed by several factors including the borrower’s age, the appraised value of the home and the current reverse mortgage interest rate. Reverse mortgage lenders and counselors can provide you with an estimate of how much may be available to you. Most reverse lending activity involves government-sponsored programs, although some lenders offer their own proprietary reverse mortgage programs. Currently, the FHA/HUD Home Equity Conversion Mortgage (HECM) is the most popular choice because it makes more equity available to the senior and the interest rate may be lower.

Financial Counseling Required
Counseling is an integral part of obtaining a reverse mortgage. Before an application can be taken, an applicant must participate in mandatory counseling. The counseling is frequently done over the phone. The lender will provide a list of certified counselors to choose from. The borrower may have a family member or trusted advisor participate in the counseling session. Counseling helps the borrower decide if the reverse mortgage is the correct financial tool to help meet current and future financial needs. A certificate of completion is given to the senior after the counseling is completed.

Payment Options
A reverse mortgage offers several payment options to the senior. Options may include a lump or partial advance, a line of credit, a fixed monthly benefit (tenure), or a combination of any of the payment options. One of the most popular payouts is a monthly benefit combined with a line of credit (modified tenure). The borrower may also elect to receive the money over a fixed term as an example a five year term.
Reverse Mortgage Costs, Fees and Rates

The cost of a reverse mortgage is always a hot topic. Many people believe the cost to be higher than other mortgage products, but that is not necessarily true. The closing costs for HECM include: the FHA insurance premium, the origination fee due to the lender, third party closing costs, and the monthly servicing fee. Most seniors use the reverse mortgage proceeds to pay for all of the closing costs.

The FHA insurance premium is based on 2% of the appraised value of the home. Each county in Connecticut has a pre-established FHA lending limit, so this amount varies based on the lending limit and the home’s appraised value. Reverse mortgages also have an origination fee. This fee is determined by FHA’s mandate formula. The maximum origination fee is $6000, but for many homeowners’ the fee is less. The remainder of the costs covers standard items such as the appraisal, attorney fees, title policy, and recording fees.

The final cost is the monthly servicing fee assessed by the lender. The lender may impose a $30 or $35 fee. The fee is not directly billed to the borrower, but is drawn monthly against the reverse mortgage equity. The borrower receives a monthly statement showing the activity on the account.

Interest rates for reverse mortgages are variable interest rates. The HECM reverse mortgage offers the borrower a choice- the rate can change monthly or annually based on the borrower’s election. A maximum rate cap protects the borrower.

Is a Reverse Mortgage Right for You? -- Make an Informed Decision.
A reverse mortgage is unusual in that the borrower is not qualified based on credit or income. This is a very valuable benefit for a senior homeowner, who may not have the income or credit for a traditional mortgage or home equity loan product. A valued advantage of the Reverse Mortgage is the proceeds of a reverse mortgage are not taxable as income. The senior retains title to his or her home. The senior is responsible to pay the property taxes and homeowner’s insurance on the home. A reverse mortgagee is repaid when the home is no longer the primary residence of the senior homeowner. A reverse mortgage can enable a senior homeowner to age in place; that is, to remain in his or her home. The mortgage can provide money for home modifications; meet the rising costs of property taxes, provide in-home care as an alternative to nursing home care, or simply enhance the senior’s quality of life.

Being well informed is the most important step in a reverse mortgage. Several websites are available to assist the senior: www.reversemortgage.org (sponsored by the National Reverse Mortgage Lenders Association) and www.AARP.org. You can also contact AARP at 1-800-424-3410 for free booklet on reverse mortgages.


Joyce Kuhn, a board member of the Western Connecticut Area Agency on Aging, also is a Certified Senior Advisor and Assistant Vice President at Fairfield County Bank. She specializes in reverse mortgages. You may reach Joyce by phone toll free at 1-800-776-6518 extension 7540, or 203-431-7540.

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