Note: While we have spent extensive time researching and interviewing experts on reverse mortgages and their suitability for seniors aging in place, a home equity conversion mortgage is not right for everyone. As with most financial products and services, there are many pros and cons to reverse mortgages. For a full understanding of your options, always consult with a financial adviser or housing counselor. Aside from the resources detailed here, the U.S. Department of Housing and Urban Development (HUD) maintains extensive information and connections to financial professionals who can help you understand your credit and financing options. Other resources include the National Reverse Mortgage Lenders Association and AARP.
Retirement should be a joyful time of life, but living on a fixed income poses myriad risks. A reverse mortgage is one option for shoring up your finances and eliminating the burden of monthly mortgage payments by leveraging the equity you have in your home. Regulated by the department of Housing and Urban Development (HUD), a home equity conversion mortgage (HECM) lets homeowners who are 62 or older take out a loan or line of credit against their home equity that does not need to be repaid until the borrower (and any non-borrowing spouse) moves or dies.
Because the Federal Housing Authority (FHA) backs HECMs, HUD places limits on certain fees and other aspects of the loans, leaving little margin for differentiation among competitors. The amount you can take out, for example, is determined by HUD’s principal limit factor table, your home equity, your age and the interest rate set by the lender.
While the HECM products available to borrowers are fairly standardized, the lenders themselves vary in size, customer service approach and reputation. Some deal solely in HECM loans; others offer conventional, “forward” mortgages and home equity loans as well. For higher-end borrowers and those whose homes do not meet FHA standards for HECM eligibility, such as co-ops and some condos, a handful of banks offer proprietary reverse mortgages (also called jumbo reverse mortgages) that are not backed by the FHA.
The lenders we’ve reviewed here offer their services in most states in the country, and we used broad criteria to evaluate them. You may find options in your area that are better suited to your needs. The quality of your experience will depend in large part on the loan officer you choose, as you will be trusting that person to get you the best deal for your situation and your home. We suggest you use this guide as a starting point and then do your own one-on-one investigation before you sign on any dotted lines.
Best Overall Lender
While it’s the second largest national reverse mortgage lender, Finance of America Reverse operates with a more personal touch than many of its competitors. It is also one of the only banks to offer a proprietary (jumbo) reverse mortgage to serve customers whose home values exceed the limit set by HUD or are not approved by the FHA to receive a Home Equity Conversion Mortgage (HECM).
Best for Comparison Shopping
While LendingTree.com is set up as your one-stop shopping site for a reverse mortgage (or a variety of other loans), you don't have to use it as such. It is a pretty convenient way of getting a bunch of potential lenders to come to you, rather than pursuing them individually. All you have to do is enter your address, estimated home value, phone number, and email address, and voila, you've got quotes. Just don't be alarmed: Your phone will probably ring within 30 seconds with a call from a very eager loan officer.
Best Online Borrowing Experience
San Diego-based One Reverse Mortgage has been in the business since 2001, and was bought by Quicken Loans’ parent company Rock Holdings in 2008. It follows the Quicken business model of giving loans only through online and phone transactions. Even without the opportunity for in-person meetings, the company consistently receives high marks from consumers for its customer service.
Best for Big-Brand Name Recognition
It's no coincidence American Advisors Group is both the reverse mortgage company you're most likely to have heard of and the biggest provider of this type of loan. Since its founding in 2004, the Southern California-based company has long relied on advertising (in particular, those Tom Selleck TV commercials) to fuel its growth. After major banks like Wells Fargo opted out of the reverse mortgage business, AAG rose to the top, in terms of volume of loans originated each year.
Best for High-End Borrowers
Maybe there's something reassuring about getting a loan from a company with an Ivy League seal of approval, as Longbridge Financial does. Before joining the New Jersey-based lender at its founding in 2012, CEO Christopher Mayer was best known as a high profile real estate professor at Columbia University Business School (a position he still holds) and a visiting scholar at the Federal Reserve.
Best Ways to Age in Place without Going Broke: Reverse Mortgages and More
For all its benefits, retirement can often leave you more vulnerable to financial distress. Taking out a reverse mortgage is just one option for addressing your credit and financing needs. Because home equity conversion mortgages (HECMs) are federally backed and regulated, there isn’t a huge difference among competing lenders’ products (though you should still shop around for the best deal, of course). But there are other ways to ease your financial burden and increase cash flow while aging in place. Knowing all your options can help you make smarter decisions.
Reverse Mortgage (HECM)
A home equity conversion mortgage (HECM) allows homeowners who are 62 or older to take out a loan or line of credit against their home equity that does not need to be repaid until the borrower (and any non-borrowing spouse) moves or dies. Because the loan is backed by the Federal Housing Authority (FHA), certain fees and limits are set in stone. The amount you can take out is based on your home equity, your age and the interest rate. At a 4.5 percent interest rate, a 62-year-old may be able to take out a reverse mortgage for up to 43.9 percent of the home’s value (with the value capped at $679,650). You can take out only 60 percent of that limit in the first year, unless you need more to pay off an existing mortgage and related obligations. After the funds pay off the existing mortgage, you can take out the remainder of the 60 percent as a lump sum or choose to have it available as a line of credit, which will have an adjustable interest rate. One advantage of the line-of-credit option is that any unused credit grows and compounds at the same rate as the loan’s interest rate.
While you don’t need to make payments on the loan as long as you live in your home, you will still be responsible for paying property taxes and homeowners insurance. Failure to pay those has resulted in many reverse mortgage foreclosures in recent years.
One big benefit for borrowers or their heirs is that reverse mortgages are “nonrecourse” loans: If the home’s value drops below the amount of the loan, borrowers won’t have to pay back the difference. When the loan is payable, they can either relinquish the home or pay back 95 percent of its current value.
Reverse Mortgage for Purchase
Many people think of reverse mortgages as a way to stay in the home they’ve owned for decades, but since 2008 it has also been an option for seniors who would like to purchase a new home. The same limits and rules apply, so you would only be able to use the mortgage for a percentage of the purchase based on your age. But a reverse mortgage for purchase is an option for anyone looking to relocate without having to make new mortgage payments, especially if their new home costs more than the equity they have in their old one.
Proprietary (Jumbo) Reverse Mortgage
This is a product available in some states, and from select lenders, that is not backed by the government. The interest rates are higher, and these are not nonrecourse loans. But if you live in a condo that is not approved by the FHA or in a coop apartment, a jumbo loan would be your only option for a reverse mortgage. It’s also a way to access equity for a home worth more than the HUD cap of $679,650.
Forward Mortgage Refinancing
This is one avenue you may have written off, knowing it’s much harder to get a new loan when you are no longer employed. But it’s not impossible. Speak to your current mortgage lender to talk about your options for loan modification or refinancing. Though banks usually calculate mortgage qualification based on income, some now consider annuitized assets as well. They calculate what 70 percent of the money in your retirement funds would look like divided by the number of months in the loan for which you are applying (for example, 360 months for a 30-year mortgage). Your retirement assets must be liquid to qualify for consideration.
You should also talk to a housing counselor – either someone at a nonprofit senior center you already know and trust or a specialist listed on the HUD database – to discuss other available options. Some programs that were set up in the wake of the 2008-2009 housing crisis, such as HARP and the Hardest Hit Fund, are still available to offer modifications for those who have no equity or are underwater on their mortgages. You can speak to a HUD counselor anytime by calling the department at (888) 995-HOPE (4673).
Home Equity Loan/Home Equity Line of Credit
This could be an option if you have equity in your home and know your need for extra cash flow will occur within less than five to 10 years. The maximum amount you can take out is usually 80 percent of your home’s value, minus the amount you currently owe on a forward mortgage, but the max may be less if your income or annuitized assets (see above) are too low. So, a $100,000 home with $40,000 left to be repaid in mortgage would have a $40,000 home equity loan limit. As the name indicates, a home equity loan gives you the money in a lump sum, which accrues fixed interest and must be repaid in monthly payments, just like a regular mortgage. A HELOC lets you borrow up to that limit for a set period (five to 10 years), at an adjustable interest rate. You pay interest only on what you’ve borrowed, and during that time, you can make interest-only payments. After that draw period is up, you’ll have another period of years (often 20) in which to pay back what you borrowed.
A benefit to these loans is that interest payments are tax deductible (on a loan value up to $1 million when combined with mortgage interest). On the other hand, if you default on a home equity loan or HELOC, you could be subject to foreclosure. One more big drawback of a HELOC, as many discovered during the recession, is that banks can freeze the line of credit if they believe the value of your home has dropped significantly or that you have become otherwise incapable of paying back the loan.
Other Options for Credit and Financing
VA Home Loans
Other Specialized Loans
There are loans designed for specific, short-term needs, such as home improvements, medical bills and home energy costs.
‘The Family Bank’
“There have been several times over the years when I’ve met with the families, and they really didn’t realize that their parents were in such a precarious financial situation,” says Alfie Schloss, a licensed reverse mortgage originator in New York.
Rather than have their family member take out a reverse mortgage, which has high closing costs and generally higher interest rates than traditional mortgages, the rest of the family can opt to pool their resources and keep the banks out of it. If anyone is concerned about the fairness of this transaction, or worried about the consistency of such an arrangement, an attorney experienced in estate law can draw up a formal agreement for the family. In essence, the arrangement is a kind of reverse mortgage in which the adult children are both heirs and lenders (usually without charging their parents interest).
Government Benefits and Assistance Programs
In many cities and states, seniors who earn less than a set annual income can apply for property tax exemptions. In New York, for example, anyone over 65 who earns less than $29,000 a year can pay 50 percent less in property taxes.
The federal government also offers programs to help low-income individuals and families pay for home energy and for weatherizing their homes to reduce energy costs. States may offer even more help with those costs.
You may also be eligible for assistance paying for other utilities, food and health care. The National Council on Aging has a BenefitsCheckUp tool that can find what is available to you. Or you can visit a local senior center, where experts can guide you through the process of registering for benefits.
As tantalizing as reverse mortgages may be – particularly with celebrities endorsing them at every turn – there are other options available for securing credit or financing in your senior years. As with all financial products and services, there are many professional and nonprofit resources available where you can find answers to your questions without dipping into your pockets.