Skip to content

Reverse Mortgage Features and Terms Summary

January 25, 2013

Reviewing Reverse Mortgage DocumentsThere are many loan documents with the reverse mortgage (all mortgages actually) and it’s hard to remember all the details through the life of the loan.  To help you have a better understanding initially as well as be a reference in the future, this article summarizes the reverse mortgage features and terms.

  • A reverse mortgage is a mortgage or lien against your property allowing you to use the equity in your home.
  • Monthly mortgage payments are not required.
  • Through FHA, the Home Equity Conversion Mortgage (HECM) is a government insured program and regulated by HUD.
  • As a loan against your property, the funds are not considered income so Social Security and Medicare are not affected; and generally SSI and other public benefits are not affected; Medicaid can also be received under certain situations – consult with legal services for your situation.
  • Generally the funds received are considered tax free – consult your tax advisor regarding your situation.

Who Owns Your Home  

  • You retain title and remain a vested owner of your property.
  • You retain all rights and responsibilities of home ownership, including property maintenance, tax and insurance payments, etc.

Borrower Protection

  • Should the lender default, FHA will assume the responsibilities of the lender and guarantees funds are available to borrowers according to terms of the loan.
  • As FHA loan, interest rates are lower than they otherwise would be on a reverse mortgage.
  • Non-recourse: Borrower/Homeowner or the estate will never be obligated for more than the fair market value of the property.

Adjustable Interest Rate – HECMs

  • If you have selected an adjustable rate product, your interest rate may change over the life of the loan.
  • There is a cap of 10 points higher than the initial rate at the time of closing.
  • The interest rate may adjustable monthly and the current and future rates will be provided on your monthly statement.
  • The rate is based on the LIBOR index.
  • Interest is charged against your loan balance only.  Unused line of credit and/or unused term/tenure payments will not accrue interest.

Fixed Interest – HECMs    

  • If you have selected a fixed rate product, your interest rate is fixed and will not change over the life of the loan.

Ongoing Costs

  • Interest accrues only on amounts borrowed.
  • Monthly charge for FHA Mortgage Insurance Premium (MIP) – 1.25 per year on loan balance (added to loan balance).
  • All costs, charges, and accrued interest are added to loan balance.
  • Essentially you are borrowing these funds each month because you are not paying them monthly; this is why the loan balance increases over time.

Line of Credit (if applicable)    

  • Available credit of unused portion of line of credit grows over time at the current applied interest rate plus 1.25.  This is not interest, but a growth rate.
  • Interest is not charged on unused portion of line of credit.
  • Line of credit funds advances must be requested in writing from the lender/servicer.  Lender has 5 business days to process your request.

Term/Tenure Payments (if applicable)

  • If you have selected monthly Term or Tenure Payments, these monthly advances will be paid to you on the first business day of each month beginning the month after loan closing.
  • Interest is not charged on un-advanced monthly term/tenure funds.


  • Although monthly or periodic mortgage payments are not required, you may make full or partial payments at any time.
  • Please contact the lender/servicer for payment address and information.
  • Partial payments reduce the loan balance due.
  • Partial payments on adjustable rate HECM’s will create or increase the line of credit and these payments can be borrowed in the future.
  • Payments on fixed rate HECM’s are permanent payments.
  • Payment in full will terminate the loan and eliminate any available term/tenure payments and/or line of credit.

Due and Payable

  • No payment is required until/unless one of the following occurs:
  • Borrower(s) no longer occupy the home as a primary residence.
  • Borrower(s) no longer owns the home.
  • All borrowers have passed away.
  • Property taxes are not kept current.
  • Homeowner’s/Hazard insurance is not kept current.
  • Flood Insurance (if applicable) is not kept current.
  • HOA dues (if applicable) are not kept current.
  • Required repairs are not completed.
  • Property is not properly maintained.
  • Title vesting changes are made.

Upon Death of Borrower(s)

  • If there is a surviving borrower(s) continuing to occupy the home, the reverse mortgage continues without any changes.  If a sole borrower dies or there are no surviving borrowers, the reverse mortgage becomes due and payable in full.
  • Heirs/estate should contact the lender/servicer within 30 days to provide notice of the death.
  • A reverse mortgage is not transferrable to the heirs or estate.
  • The loan may be repaid from sale of property.
  • If heirs wish to keep the home, they may satisfy the debt by paying the lesser of the mortgage balance or 95% of the FHA appraised value of the home at that time.
  • Most lenders are allowing up to six months for heirs to settle the estate and repay the reverse mortgage.  Where justified, HUD, who regulates the HECM,  may approve extensions beyond this time up to a total of 12 months.

Your Responsibilities

  • Pay property taxes.
  • Maintain homeowners insurance on property.
  • Maintain flood insurance (if applicable) on property.
  • Pay HOA dues (if applicable).
  • Complete required repairs timely.
  • Maintain property.
  • Not make changes to title vesting.
  • Return the annual occupancy certificate to lender.
  • Provide proof your property taxes have been paid annually.
  • Provide proof your property insurance has been paid.

When To Notify Your Lender

  • If you change your insurance provider.
  • If you change your bank for direct deposits.
  • If you are putting the property into a Trust.
  • Any other changes to the property.
  • If there is a claim from your property insurance.
  • When a Power of Attorney (POA) is being implemented to make decisions on your behalf.

©2013 Beth Paterson and Greenleaf Financial, LLC 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:

Related articles:

21 Comments leave one →
  1. January 26, 2013 9:39 am

    Excellent post!

  2. January 26, 2013 9:46 am

    Reblogged this on James Spray's Blog and commented:
    Beth Paterson has written yet another highly informative article. This time she has very nicely summarized the benefits and responsibilities of the Home Equity Conversion Mortgage (HECM). The HECM is the FHA Insured Reverse Mortgage regulated by the US Department of Housing and Urban Development.

  3. January 27, 2013 12:50 pm

    Great summary! Thanks


  1. Let Me Educate You On Adjustable Rate Reverse Mortgages « Beth's Reverse Mortgage Blog
  2. Reverse Mortgage Protects Retirement Funds « Beth's Reverse Mortgage Blog
  3. The answer to the common reverse mortgage tax question « Beth's Reverse Mortgage Blog
  4. Seniors, want to purchase your new home with no monthly mortgage payments? Use A Reverse Mortgage. | Beth's Reverse Mortgage Blog
  5. You’ve Decided To Do A Reverse Mortgage… Should You Do The HECM Standard or the HECM Saver? | Beth's Reverse Mortgage Blog
  6. Change Is Inevitable and They Are Coming To Reverse Mortgages Soon | Beth's Reverse Mortgage Blog
  7. Changes Are Inevitable and They Are Coming To Reverse Mortgages Soon | Beth's Reverse Mortgage Blog
  8. Veterans Who Have Served Our Country Have Found The Reverse Mortgage Has Served Their Needs | Beth's Reverse Mortgage Blog
  9. Without The Reverse Mortgage Money I Would Have Been “Up The Creek Without A Paddle.” | Beth's Reverse Mortgage Blog
  10. Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs | Beth's Reverse Mortgage Blog
  11. Think you don’t need a reverse mortgage? Think again… Maybe you’ll WANT one. | Beth's Reverse Mortgage Blog
  12. Know a Senior Who Wants Security, Independence, Dignity, and Control? A Reverse Mortgage May Be The Answer! | Beth's Reverse Mortgage Blog
  13. Reverse Mortgages Provide Security, Independence, Dignity And Control | Beth's Reverse Mortgage Blog
  14. Seniors, want to purchase your new home with no monthly mortgage payments? Use A Reverse Mortgage. | Minnesota Reverse Mortgages SIDAC
  15. You’ve Decided To Do A Reverse Mortgage… Should You Do The HECM Standard or The HECM Saver? | Minnesota Reverse Mortgages SIDAC
  16. Reverse Mortgage Protects Retirement Plan | Minnesota Reverse Mortgages SIDAC
  17. Veterans Who Have Served Our Country Have Found The Reverse Mortgage Has Served Their Needs | Minnesota Reverse Mortgages SIDAC
  18. Let Me Educate You On Adjustable Rate Reverse Mortgages | Minnesota Reverse Mortgages SIDAC

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: