Reverse Mortgage Lending Programs

Many banks and lenders offer private reverse mortgage products, and there are presently two national lending programs for reverse mortgages: the federally-insured Home Equity Conversion Mortgage and the Home Keeper® Mortgage, which is available through reverse mortgage lenders approved by Fannie Mae.

Home Equity Conversion Mortgage

A Home Equity Conversion Mortgage, or HECM, is funded by a lending institution such as a mortgage lender, bank, credit union or savings and loan association and insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD). In addition to the requirements common to all reverse mortgages with respect to borrower eligibility, HECM loans require the borrower's participation in a consumer information session given by an FHA-approved counselor.

While there are no limits on the value of homes qualifying for a HECM loan, the amount that may be borrowed is derived from the lower of the appraisal amount or FHA mortgage limit for the particular geographical area. The value of the home will be determined by an appraisal. The FHA mortgage limit varies, depending upon the area, from $200,160 to $362,790. For Alaska, Guam, Hawaii and the Virgin Islands, the FHA mortgage limits may be adjusted up to 150 percent of the ceiling depending on the area. The FHA limits usually increase each year.

HECM loans offer five payment plans:

  • Tenure: equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • Term: equal monthly payments for a fixed period of months selected.
  • Line of Credit: unscheduled payments or in installments, at times and in amount of borrower's choosing until the line of credit is exhausted.
  • Modified Tenure: combination of line of credit with monthly payments for as long as the borrower remains in the home.
  • Modified Term: combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

Homeowners who elect one payment plan, and whose circumstances subsequently change, can restructure their payment options for a nominal fee of $20.

There are no asset or income limitations on borrowers receiving HUD's reverse mortgages.

There are a number of reverse mortgage fees / costs that anyone considering a reverse mortgage should be aware of. Most of these reverse mortgage fees can be paid for out of your reverse mortgage proceeds:

  • Origination Fees: The reverse mortgage lender may charge an origination fee to cover its costs of preparing the paperwork and otherwise handle the process of securing the reverse mortgage. This fee can be up to 2% of your home's value. If 2% of your home's value is less than $2,000, the HECM rules allow the lender to charge up to $2,000.
  • Closing Costs: The reverse mortgage closing process involves the participation of a number of third parties in addition to the reverse mortgage lender who provide additional services, including, appraisal, title search, inspections, credit checks, surveys, insurance, etc. These costs will vary depending on your home's value and its location, but typically fall in the $2,000 to $3,000 range.
  • Mortgage Insurance: HUD's reverse mortgage program collects funds from insurance premiums charged to the homeowners. Homeowners are charged an upfront insurance premium which is 2 percent of the maximum claim amount that may be borrowed plus a 0.5 percent annual premium.
  • Interest: Almost all HECM reverse mortgages are pegged to adjustable interest rates. As such, the rate on your reverse mortgage can go up or down and is typically tied to the 1 Year Treasury rate. Your HECM reverse mortgage lender must offer you a 1 year adjustable rate option (i.e. the rate resets annually), however, you may also be offered a monthly adjustable rate option at a lower initial rate.
  • Servicing Fees: Servicing fees cover the costs of your reverse mortgage after it has funded, including paying you your reverse mortgage proceeds, changing your withdrawal preferences, paying property taxes as directed by you and otherwise monitoring your obligations under the reverse mortgage. These fees are typically $30-35 per month, however, they are not paid out of pocket. Rather, they are "set aside" from your reverse mortgage proceeds (reducing your borrowing capacity). The amount of the set aside is the number of months until you are 100 times the monthly fee.

Fannie Mae Home Keeper® Mortgage

Fannie Mae developed the Home Keeper® Mortgage as an alternative to the HECM. The Home Keeper® Mortgage meets certain needs that HECM loans do not, such as higher-value properties, condominiums and new home purchases.

Fannie Mae’s maximum mortgage limit, presently $417,000, is larger than the locally applied FHA maximum mortgage limit for HECM loans. In addition to single-famly homes, eligible property types include condominium units, units in qualified planned unit developments, properties held in trust, and qualified leasehold properties. Cooperative units are not eligible for Home Keeper® loans.

Home Keeper® funds are available as:

  • fixed monthly payments for life or as long as the borrower occupies the home as his or her principal residence;
  • a line of credit; or
  • a combination of monthly payments and line of credit.

Unlike an HECM loan, a Home Keeper® loan may be used to purchase a new home in a single transaction.

Private Reverse Mortgages

A number of private reverse mortgage lenders offer reverse mortgages that allow homeowners with home values in excess of $550,000 to access more of their home equity from a reverse mortgage. Most private reverse mortgages have lower upfront costs than federally insured mortgages and are available with both fixed and adjustable rate options. They also are similar to reverse mortgages offered under federal programs in that they have a “non-recourse” feature – i.e. the amount owed cannot exceed the resale value of the home (the lender absorbs any losses in the event the sale price is below the reverse mortgage amount). As with both the Home Equity Conversion Mortgage (HECM) and Home Keeper® programs, borrowers must attend reverse mortgage counseling sessions to obtain private reverse mortgages. Private reverse mortgages may also be referred to as "proprietary reverse mortgages", “conventional reverse mortgages” and “jumbo reverse mortgages”.

Reverse mortgage lenders that offer the HECM reverse mortgage program also typically offer at least one private mortgage option.