Get the Facts on Reverse Mortgages
6 min read
A reverse mortgage is a unique type of loan that lets homeowners age 62+ convert a portion of the equity in their home into cash. The loan is repaid when the borrower no longer lives in the home. Currently the primary product on the reverse mortgage market is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA).
Homeownership and reverse mortgage trends
- In 2022, just over 79% of older Americans were homeowners, and the median home equity held by Americans age 65+ was $250,000.1
- Over 1.3 million older homeowners have taken advantage of HECM loans to tap into their home equity since 1990.2
- The popularity of reverse mortgages, however, is declining somewhat from a peak of over 119,000 borrowers in 2009. In the first half of 2024, 19,894 older homeowners initiated a HECM.2
A snapshot of reverse mortgage borrowers
- In FY2023, single women represented the largest group of HECM borrowers.3
- The vast majority of HECM borrowers are white (66.2%), followed by Black (6.6%) and Hispanic (4.8%) homeowners.3
- The average age at which people take reverse mortgages has remained relatively steady over the years, at just under 75.3
Reverse mortgages generally are not used for vacations or other "fun" things. Most borrowers use their loans for immediate or pressing financial needs, such as paying off their existing mortgage or other debts. Or they may consider these loans to supplement their monthly income, so they can afford to continue living in their own home longer.
Types of reverse mortgage payments
Taking out any home loan can be costly because of origination fees, servicing fees, and third-party closing charges such as an appraisal, title search, and recording costs. Most of these costs can be paid as part of the reverse mortgage loan.
Borrowers can choose to receive reverse mortgage payments several ways:
- Lump sum: This is a single amount of money received when closing on the loan.
- Term: The value is paid out in equal monthly payments for a fixed term of months chosen by the borrower.
- Tenure: Similar to the term payment method, payments are disbursed in equal monthly amounts for the life of the loan.
- Line of credit: Like a home equity line of credit (HELOC), borrowers may take out any amount of money at any time until the line of credit is exhausted.
The majority of HECM borrowers (nearly 95%) use a line of credit when taking a reverse mortgage.3
Considerations for taking out a reverse mortgage
Reverse mortgages are best used as part of a sound financial plan, not as a crisis management tool. Experts recommend that older homeowners interested in a reverse mortgage take time to consider all options before initiating a loan, including:
- Using a HELOC
- Refinancing a current mortgage
- Downsizing
- Lowering expenses4
Reverse mortgage borrowers still must pay property taxes, insurance costs, and any condo/homeowners’ association fees. If these are not paid in a timely manner, the homeowner can face default on the loan and eventually foreclosure on their home.
Federal law requires that all individuals who are considering a HECM reverse mortgage receive counseling by a HUD-approved counseling agency. Telephone-based counseling is available nationwide, and face-to-face counseling is available in many communities.
NCOA’s role
The National Council on Aging (NCOA), through partnerships and resources, helps seniors explore how to use their home equity wisely.
NCOA has a long-standing partnership with GreenPath Financial Wellness–a nonprofit financial wellness organization approved by the U.S. Department of Housing & Urban Development (HUD) to assist older adults with a range of services to help save money. GreenPath offers reverse mortgage counseling to older homeowners. Counseling sessions last between one to two hours and follow a federally mandated protocol. The counselors can also assist clients with applying for benefits and finding local community services. The toll-free number for this service is 888-508-6762. To find a local HUD-approved counselor, visit https://entp.hud.gov/idapp/html/hecm_agency_look.cfm.
Use Your Home to Stay at Home©
NCOA’s Use Your Home to Stay at Home© is the official federally approved consumer booklet for older homeowners considering a reverse mortgage.
Sources
1. Joint Center for Housing Studies of Harvard University. Housing America’s Older Adults. 2023. Found on the internet at https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_Housing_Americas_Older_Adults_2023.pdf
2. National Reverse Mortgage Lenders Association. Annual HECM Production Numbers. May 2024. Found on the internet at https://www.nrmlaonline.org/annual-hecm-endorsement-chart
3. HUD. Annual Report to Congress Regarding the Financial Status of the Federal Housing Administration Mutual Mortgage Insurance Fund. Fiscal Year 2023. Found on the internet at https://www.hud.gov/sites/dfiles/PA/documents/2023FHAAnnualReportMMIFund.pdf
4. CFPB. Can anyone take out a reverse mortgage? Found on the internet at https://www.consumerfinance.gov/ask-cfpb/can-anyone-take-out-a-reverse-mortgage-loan-en-227/
