How old do you have to be to do a Reverse Mortgage?
A primary question people ask me about qualifying for Reverse Mortgages is “How old do you have to be to do a Reverse Mortgage?”
The quick answer is 62 is how old but the real answer is a little bit longer than that. You see things are still changing with Reverse Mortgages and now there are various loan options for people to consider which could change my answer slightly. Let me clarify what I mean.
HECM Reverse Mortgage – HUD or FHA is the sponsor of the HECM Reverse Mortgage which accounts for the vast majority of Reverse Mortgage loans being done in the United States. In the past the HECM required both home owners be 62 or older in order to be on the Reverse Mortgage but with changes in recent years FHA now only requires one homeowner to be 62, the other can be as young as 18 and still enjoy most of the benefits of the Reverse Mortgage.
Proprietary Reverse Mortgage – Starting on October 2, 2017 we’ve seen a lot of changes over the past 12 months with Reverse Mortgages. When HECM made dramatic reductions in the max loan amounts in Oct of last year multiple other banks began introducing what are called proprietary Reverse Mortgages. The basic idea is the same but these loans are sponsored by the Banks themselves and not FHA and this allows the banks to adjust their requirements and charges.
The highlights vary from bank to bank but these are some of the features we’ve seen become available:
- Age – One big introduction is a younger qualifying age of just 60 years for some Proprietary Reverse Mortgages.
- Jumbo loan amounts – HECM is limited to home values of $679,650 but Jumbo Reverse Mortgages are designed to service homeowners with multi-million dollar homes. These homes aren’t super common in Southern Utah but states like Colorado and California are seeing an increasing number of Jumbo Reverse Mortgages.
- Lower Costs – Costs for the HECM can be high because of the 2% Mortgage insurance Funding Fee. For a home worth $650,000 total costs could range as high as $15,000-$22,000. With proprietary Reverse Mortgages there is no funding fee so costs more commonly average between $4,000 and $8,000.
- Mortgage Insurance – Proprietary Reverse Mortgages do not have Mortgage insurance however, they are still typically what’s called a “Non-Recourse” loan. This means that if the mortgage balance ever exceeds the home’s value the homeowner and their estate are not held liable for any losses that the loan incurs.
- Interest Rates – Because Proprietary Reverse Mortgages do not have Mortgage insurance they are considered very high risk for the banks that issue them. For this reason, interest rates for these loans are currently ranging between 5.9% and 7.2%. Compare that with HECM rates which average between 4.5% and 5.1%.
Proprietary Reverse Mortgages are still very new and because of that I am pretty reserved on recommending them to my client. In general, I favor the HECM Reverse Mortgage because of its lower rates which means lower long-term costs. But in certain situations and under certain needs the Proprietary Reverse Mortgage could be the better fit for a lot of people. My recommendation as always is to work with a qualified Reverse Mortgage Specialist to really explore the Pros and cons of doing a Reverse Mortgage and the options of how you structure it.
Negative Amortization Loans – Also returning to the mortgage market is the Neg Am loan. The basic idea on these loans is that when you don’t make your monthly payment the interest that is charged is added to the balance of the mortgage. The All in One home loan is the version I offer. It is like a HELOC in that you have an open line of credit against your home and until you reach 80% of your home’s value you can either draw additional funds or skip monthly payments and those payments will be added to the loan balance. To qualify for these home loans 18 is how old you have to be but I like to add a strong caution to doing this type of home loan because it is a short-term solution, not a long-term one. Most of the people I see doing these home loans are typically self-employed borrowers who will use the home loan as a way to finance their business expenses from month to month but get large payouts that they use to pay their mortgage balance back down.
I’m licensed in Utah, Nevada and Colorado and can help you if you live in one of these states. If you don’t live in one of these states feel free to give me a call anyway. I’ll do my best to answer your questions and refer you to another great Reverse Mortgage Specialist in your state.
If you or anyone you love is curious about a Reverse Mortgage please give me a call.
President – Reverse Mortgage Specialist
Heritage Reverse Mortgage
Heritage NMLS #1497455 Trevor’s NMLS #: 267962
1060 South Main Street Bldg. A Suite 101B
St George Utah 84770