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CBS News
9 hours ago
- Business
- CBS News
What is the 95% rule on a reverse mortgage (and why does it matter)?
As home prices stay elevated in most markets across the nation, and as more older Americans look for ways to unlock the equity in their homes, reverse mortgages are gaining attention. These loans, designed for homeowners aged 62 and older, let borrowers tap into their home's value without giving up ownership or requiring them to make monthly loan payments. And for seniors on a fixed income, they can offer a much-needed financial cushion. But while reverse mortgages can be a useful tool for those who qualify, these loans also accrue interest over time. And, since there are no monthly payments made by the homeowner, the loan can grow significantly as the interest charges stack up. In some cases, the reverse mortgage loan balance may even exceed the home's market value by the time the loan repayment is due. If family members want to keep the property, though, they'll typically need to settle the loan balance or face a potential sale. That's where the 95% rule comes into play. This lesser-known rule could make the difference for heirs hoping to hold on to a family home. Below, we'll detail how that rule works — and why it matters so much. Find out how a reverse mortgage loan could benefit you today. The 95% rule is a consumer protection built into federally backed reverse mortgages, known as Home Equity Conversion Mortgages (HECMs). These loans are insured by the Federal Housing Administration (FHA), and the rule is part of that insurance framework. Here's how the rule works: If your heirs want to keep your home after you die, or after you and a co-borrower or eligible non-borrowing spouse permanently move out, they are required to pay either the full loan balance or 95% of the home's current appraised value, whichever is less. This rule ensures that your heirs won't have to pay more than the home is worth, even if the loan has grown significantly due to accrued interest. And with no monthly payments required during the life of the loan, reverse mortgage balances can grow quickly, especially if the borrower lives a long time or home values decline. Let's say a borrower takes out a reverse mortgage and eventually owes $320,000 by the time they die. However, the housing market has dipped, and the home is now only worth $280,000. Under the 95% rule, the heirs wouldn't need to repay the full $320,000. Instead, they'd be allowed to keep the home by paying 95% of the appraised value — or $266,000 in this case. The remaining loss would be covered by FHA mortgage insurance. If the home is worth more than the loan balance, however, the heirs must repay the full amount owed, just like with any other mortgage. If they don't want the home, they can sell it, repay the reverse mortgage loan from the sale proceeds and keep any leftover equity. Note, though, that the 95% rule only applies if heirs want to retain the property. If they're not interested in keeping it, they can simply allow the lender to foreclose or turn the home over through a deed-in-lieu of foreclosure. Learn more about your reverse mortgage loan options online now. For senior homeowners, the 95% rule offers a level of reassurance that their loved ones won't be trapped in a difficult or unfair situation. Knowing that heirs can keep the home at a reduced cost may ease concerns about passing on debt or losing a family asset altogether. Here are a few key implications for homeowners and their families: That said, there are still some important caveats. Heirs only have a limited window — usually 30 days — to express intent and up to six months (with possible extensions) to repay the loan or sell the home. And to take advantage of the 95% rule, they will need to secure financing or have the cash available to buy the property. The 95% rule on reverse mortgages might not be widely known, but it plays a crucial role in protecting heirs and easing the transition of a home after a borrower's death or departure. By capping the cost at 95% of the appraised value, this rule ensures that loved ones have a fair shot at keeping the home, even if the loan balance has grown significantly over time. And, for senior homeowners considering a reverse mortgage, the rule offers a valuable safeguard and an important talking point when discussing long-term plans with family. Still, it's just one piece of the puzzle. Before taking out a reverse mortgage, it's important to make sure the loan — and its future implications — align with your goals.
Yahoo
23-07-2025
- Business
- Yahoo
Reverse mortgage pros and cons
Key takeaways If you're a homeowner aged 62 or older, a reverse mortgage can help you obtain tax-free income, allowing you to stay in your home, pay bills, supplement your income and more. A reverse mortgage isn't free money: The borrowing costs can be high, and you'll still need to pay for homeowners insurance and property taxes. Reverse mortgages can also complicate matters for your heirs, especially if they don't want the home or the home's value isn't enough to cover what's owed. If you watch TV, you've likely seen Tom Selleck and Henry Winkler touting reverse mortgages as a valuable income source for anyone retired or with limited funds. These types of loans can be worth getting, but they aren't for everyone. Here are the pros and cons. Reverse mortgage pros and cons Reverse mortgage pros Reverse mortgage cons You can better manage expenses in retirement. You have to pay fees. You don't have to move. You can't deduct the interest until you repay. You don't have to pay taxes on the income. You could inadvertently violate other program requirements. You're protected if the balance exceeds your home's value. You still have home-related expenses. Your heirs have options. Your survivors might run into issues. Reverse mortgage pros You can better manage expenses in retirement Many seniors experience a significant income reduction when they retire. A reverse mortgage allows you to supplement that diminished income without digging into savings. You don't have to make monthly payments, either, which could help free up room in your monthly budget. You don't have to move Instead of leaving your home, a reverse mortgage allows you to age in place. Additionally, while a reverse mortgage comes with fees and other costs, it might cost less in the long run than buying another home or renting in a new location. You don't have to pay taxes on the income The money you get from a reverse mortgage isn't taxable because the IRS considers it 'loan proceeds,' not income. (However, it could be considered income by other agencies — more on that below.) You're protected if the balance exceeds your home's value Because a reverse mortgage balance grows over time, it's possible that what you owe can eventually exceed your home's value. However, because a reverse mortgage is what's known as 'non-recourse' financing, the amount of debt that must be repaid can never exceed the property's value. That also means the lender can't make any claims against your other assets or those of your heirs. Your heirs have options A borrower can pay off their reverse mortgage at any time, but typically, repayment doesn't happen until it's required: when the borrower moves, sells the home or passes away. In an estate situation, this leaves heirs with potentially several choices: Sell the property to repay the debt and keep any equity above the loan balance Repay the debt out of pocket Keep the property and refinance the reverse mortgage balance if the property's value is sufficient Allow the lender to assume the property's title if the debt exceeds the property's value (or the heirs simply don't want the house) That last option allows the lender to file a claim for any unpaid balance with the insurer (almost always the Federal Housing Administration, or FHA, which oversees the Home Equity Conversion Mortgages, or HECMs, the most popular type of reverse mortgage). Reverse mortgage cons You have to pay fees Reverse mortgages come with fees, including: Origination fee (capped at $6,000 for HECMs) Mortgage insurance premiums (MIP) Closing costs from third parties, such as an appraisal fee or recording fee Monthly servicing fee up to $35 Many of these expenses can be rolled into the loan principal; however, that can substantially increase the amount you owe. You can't deduct the interest until you repay You might have enjoyed the mortgage interest deduction on your taxes when you were paying off your mortgage, but you won't be able to deduct the interest on a reverse mortgage each year. You'll only enjoy that perk when the loan is paid in full. You could inadvertently violate other program requirements A reverse mortgage could cause you to violate asset or income restrictions for the Medicaid and Supplemental Security Income (SSI) programs. This might affect your eligibility for these benefits. You still have home-related expenses A reverse mortgage doesn't let you off the hook for property taxes, homeowners insurance premiums and HOA fees. If you fail to pay any of these expenses in a timely manner, that violates the reverse mortgage agreement and your home could be foreclosed. Your survivors might run into issues When the borrower is no longer living in the home, the reverse mortgage either has to be repaid in full or the home surrendered to the lender. This scenario could be triggered by death, but also by moving to a nursing home or long-term care facility. This situation can cause complications for those non-borrowers still living in the home. While there are protections in place for surviving spouses, they only apply if you were married prior to obtaining the reverse mortgage. The amount to repay could be a lot larger than you anticipated, too. If you never or only minimally repaid the balance before the triggering event, it might be all the more challenging to repay now. Who is a good candidate for a reverse mortgage? With all the potential complexities and risks, is a reverse mortgage a good idea? For some homeowners, the answer might be yes if: You anticipate staying in your home for a long time. Since you'll pay another set of closing costs with a reverse mortgage, ideally, you'll want to stay in the home long enough to break even on the expense. If you're 62 and expect your current place to remain your forever home, a reverse mortgage could make sense. You need more money to manage everyday expenses. If you're struggling on a limited income, a reverse mortgage can help you keep up with some bills. Your home is increasing in value. If you live in a market where home values are appreciating, your property might be worth more by the time you or your heirs pay back the loan. If you're a senior having a hard time paying bills, many states, local utility companies and organizations offer assistance. AARP maintains a list of benefit programs by state. Who is a bad candidate for a reverse mortgage? Here are a few signs that a reverse mortgage isn't right for you: You're planning to move. Remember: You'll want a long runway to make paying all the closing costs, mortgage insurance premiums and other fees worth it. You might need to move due to health issues. A reverse mortgage requires you to live in the home, which means that relocating to a nursing home or any kind of assisted living arrangement could result in needing to pay back the loan in full. You're struggling to cover other home-related costs. If you're challenged coming up with the cash for property taxes and homeowners insurance, it's best to avoid a reverse mortgage. You'll need to continue paying these expenses to meet the loan requirements. Should you get a reverse mortgage? Reverse mortgages have gained a reputation due to some scams targeting unsuspecting seniors. Even legitimate companies have used dishonest marketing to try to get homeowners to take out reverse mortgages. The simple rule is, be very cautious about putting your home at risk. Still, there's at least one key reason you might consider a reverse mortgage: increased equity. Over the past few years, home values have increased, giving many homeowners a much bigger opportunity to tap their equity. Remember that you have other options for accessing cash as well. Compare a home equity loan versus a reverse mortgage to see which one might be a better fit for your needs. Frequently asked questions What are the requirements for a reverse mortgage? The key requirements for a reverse mortgage include being of eligible age (62 or older, or 55 or older in some cases), having enough equity in the home and retaining full-time residence in the property. For the latter, that includes maintaining a homeowners insurance policy, keeping the home in livable condition and continuing to pay property more: Reverse mortgage requirements What are alternatives to a reverse mortgage? If you don't qualify for a reverse mortgage, you might qualify for a home equity loan, cash-out refinance and a home equity line of credit (HELOC).Learn more: Cash-out refinance vs. HELOC vs. home equity loan How do you get a reverse mortgage? If you're considering a reverse mortgage, begin by reviewing the reverse mortgage requirements to make sure you qualify. A reputable reverse mortgage lender can help you learn more about your options. In addition, consulting with a HUD-approved counselor can help you choose the best course of action for your unique circumstances. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CBS News
22-07-2025
- Business
- CBS News
Best reverse mortgage lenders, plus top advice homeowners should know now
As retirement approaches, many homeowners find themselves asset-rich but cash-poor, with significant equity tied up in their homes while facing reduced income streams. And, that's especially true in today's inflationary environment, which is causing the costs of just about everything to rise, making it more difficult for retirees to ensure that their retirement funds will last as long as they need them to. In turn, senior homeowners are increasingly exploring the benefits of reverse mortgages, as these specialized loans allow them to tap into their home equity without the burden of monthly payments. The reverse mortgage landscape has evolved considerably in recent years, though, with both government-backed Home Equity Conversion Mortgages (HECMs) and private proprietary programs offering different advantages to qualified borrowers. And, as with any other type of borrowing product, not all reverse mortgage lenders offer the same terms, rates or level of service. So, if you're planning to take out a reverse mortgage, knowing which lenders excel in which areas can help you maximize the benefits while minimizing potential risks associated with these complex financial products. To help you get started, we've outlined a few standout reverse mortgage lenders below. We've organized them by what sets them apart so you can match a lender to your unique situation and goals. Start exploring your top reverse mortgage lenders here today. Here are some of the best reverse mortgage lenders broken down into five categories: Longbridge Financial is ideal for budget-conscious borrowers who are seeking a reverse mortgage with minimal upfront costs. It consistently offers some of the lowest interest rates in the industry and waives monthly servicing fees for many borrowers, which can help borrowers save significantly over the life of the loan. Longbridge also acts as its own loan servicer, ensuring you'll deal with the same company from application through repayment. This continuity can be a huge advantage if you want to avoid the confusion that comes when servicing rights are transferred to a third party. Plus, the lender provides an impressive library of educational resources, making it a great fit for first-time reverse mortgage borrowers who want to fully understand their options. Find out more about Longbridge here. American Advisors Group (AAG), which was recently acquired by Finance of America, is a dominant player in the reverse mortgage space, offering a wide range of federally insured HECMs as well as proprietary jumbo loans for high-value homes. This variety makes it an attractive choice for homeowners with different needs, whether they want a traditional HECM or need to access more equity than FHA limits allow. AAG also provides tailored options for receiving funds, including lump sums, monthly payouts and lines of credit, giving retirees flexibility to structure their loans in a way that fits their financial plans. Both AAG and FOA's strong reputations for customer service and AAG's extensive educational materials make this lender particularly appealing for those seeking a highly customizable experience. Guild Mortgage stands out for its ability to work with borrowers in unique situations, making it a strong option for homeowners who may not fit the traditional reverse mortgage mold or those looking for larger loan amounts than they could otherwise qualify for. That's because, alongside standard HECM loans, Guild offers proprietary reverse mortgage products designed for higher-value homes and borrowers looking for larger loan amounts than federal limits allow. That flexibility makes Guild an excellent choice for retirees with significant home equity or non-standard property types. The lender also provides multiple disbursement options, including lump sums, lines of credit and monthly payouts, so you can tailor your reverse mortgage to meet your financial goals. Fairway combines a national presence with the personalized touch of local branches, offering reverse mortgage options backed by high customer satisfaction ratings on third-party review sites. As a result, this lender may be particularly appealing for borrowers who prefer face-to-face lender interactions and hands-on guidance throughout the process. Fairway also has a highly rated mobile app for managing the reverse loans it issues, which bridges the gap between in-person service and digital convenience. One potential drawback is that Fairway may transfer loan servicing after closing, so if keeping your loan under one roof is a priority, you may want to ask about this up front. Find out more about Fairway here. Unlike direct lenders, Northwest Reverse Mortgage operates as a broker, connecting borrowers with multiple lenders and a wide range of products. This approach allows you to compare rates, terms, and fees across several options without doing all the legwork yourself. Northwest is especially useful if you're shopping for jumbo reverse mortgages or niche loan types like HECM for Purchase. However, Northwest's reverse mortgage services aren't available in all 50 states, so if you're interested in this lender, you'll need to confirm availability in your area. For homeowners who want a one-stop shop for exploring multiple offers, though, Northwest may offer a flexible, time-saving solution. While a reverse mortgage can be a smart way to cover your expenses during retirement, it's important to approach this type of borrowing carefully. Here's how you can do that: Reverse mortgages can unlock vital funds for retirement, but only if they align with your future plans and you find the right lending partner. So, choose a lender that excels where you need it most, whether that's low cost, support, digital ease or broad options. Most importantly, stay informed about costs, eligibility rules and how the loan fits into your long-term financial picture so you can take advantage of the financial flexibility this borrowing option offers without compromising your home or other benefits.
CBS News
22-07-2025
- Business
- CBS News
4 reverse mortgage questions seniors should be asking themselves now
News last week that inflation rose in June, following a previous increase in May, was likely not the development millions of Americans were hoping for. In recent years, inflation has spiked the cost of numerous items, making it more difficult to make ends meet. This has been an even greater problem for seniors, many of whom are reliant upon limited funds to pay their bills. With Social Security and retirement funds finite, then, many of these seniors may be contemplating alternative funding sources right now. A reverse mortgage may be at the top of their list. With a reverse mortgage, homeowners age 62 and older can receive payments from their accumulated home equity. Either via a lump sum or monthly payments drawn from the home, funds here will only need to be repaid in the event of a sale of the home or if the homeowner dies. So it's naturally tempting to explore this unique funding source in the economic climate of 2025. Before getting started now, though, seniors would be well-served by preparing the answers to a series of important reverse mortgage questions. Below, we'll analyze four timely questions worth considering. Start by seeing how much you could get paid with a reverse mortgage here. Here are four reverse mortgage questions seniors may want to start thinking about the answers to right now: There are myriad ways to borrow home equity now, ranging from reverse mortgages to home equity loans to home equity lines of credit (HELOCs). Some homeowners may even benefit from a cash-out refinance. And with interest rates on home equity loans and HELOCs much lower than personal loans and credit cards, now may be the ideal time to borrow equity that way instead of using a reverse mortgage. Start, then, by exploring all of your potential home equity borrowing options to determine if a reverse mortgage is truly the smartest way to borrow your hard-earned equity now. Compare your current reverse mortgage options online to learn more. Concerns over recent Social Security overpayments, clawbacks and insolvency are all pertinent right now and it's understandable if homeowners feel like they need an additional funding source, of which a reverse mortgage can easily provide. But your home is likely your most prized financial asset and borrowing from it should always be done judiciously, especially now. So, ask yourself if you can adequately get by with Social Security and your other retirement funds instead. If you can't, a reverse mortgage makes sense. But if you're just looking for an alternative income stream that you don't truly need, it may not. If you were planning to pass your paid-off home to your beneficiaries after your death, then a reverse mortgage can alter those plans. Since funds here will need to be repaid once the homeowner has died, there may be little or nothing left to pass on to beneficiaries, many of whom may be depending on that money in today's inflationary and high-rate climate. Re-evaluate your financial goals for your beneficiaries, then, before pursuing your reverse mortgage options. You may find that there are ways to protect a portion of your assets for your beneficiaries while still securing a new income stream for yourself simultaneously. If you ultimately do settle on a reverse mortgage as your optimal recourse now, then you'll need to determine how you want to get paid. With a reverse mortgage, you can receive funds in a lump sum, via monthly payments and potentially even as a revolving credit line similar to a credit card or HELOC. Which payment strategy makes the most sense for your needs and goals? This question will be specific to the homeowner in question, but it's worth contemplating the answer now so you're better prepared when it comes time to complete the formal paperwork. A reverse mortgage could be the precise financial tool seniors require in today's unpredictable but still difficult financial landscape. By taking the time to think through the answers to these four questions, these seniors can better determine if this is truly the right move for their financial situation now or if they're better served by exploring alternatives or, in some instances, keeping their current financial strategy the same.
CBS News
21-07-2025
- Business
- CBS News
Why a reverse mortgage makes sense for seniors this July
A reverse mortgage isn't available for every homeowner. Typically, you'll need to be age 62 or older to qualify, leaving this option available mostly for senior homeowners. But if you meet the age requirements and some other criteria, this unique funding source could be worth exploring, particularly in the unique economic landscape of July 2025. With a reverse mortgage, lenders will pay homeowners out of their accumulated home equity, either in a lump sum or via monthly payments. This money will only need to be repaid in the event of the death of the homeowner or if the home in question is sold. Otherwise, homeowners can comfortably rely on these payments being made back to them, providing a much-needed financial cushion right now. And while the benefits of a reverse mortgage can often be timeless and applicable in a variety of scenarios, there are some timely reasons why it can be particularly beneficial for seniors this July. Below, we'll examine three of those reasons. Start by checking your reverse mortgage eligibility criteria online today. Not sure if a reverse mortgage could be the right move for your finances this July? Here's why it could be: Whether you're currently dealing with issues related to Social Security overpayments and clawbacks or are simply concerned about the system running out of funding in the future, a reverse mortgage can adequately fill the gaps left by Social Security each month. This additional monthly income stream can be the difference between covering all of your bills and expenses or not. With a reverse mortgage, you won't need to cut as many corners or try to squeeze as much as you can out of retirement funds and Social Security. And with inflation rising again in June and rates on loans and borrowing products remaining elevated, an additional income stream is particularly helpful to have this July. See how much you could get each month with a reverse mortgage here. Unlike a home equity loan, which also uses the home as a funding source, homeowners won't be responsible for making monthly repayments right after the funds are disbursed. They won't be required to make repayments at all, as equity taken with a reverse mortgage will simply be replenished upon the sale of the home. This is a major advantage this July, as it eliminates the stress (and calculations) required when calculating interest rates and repayments on items like home equity loans and home equity lines of credit (HELOCs). The average home equity amount sits over $300,000 right now, and if you're a senior living in a paid-off home, you may find yourself with even more money to borrow from. Qualifying, then, could be easier compared to trying to secure a six-figure credit card line or a $100,000 personal loan, for example. Lenders can easily determine your home's worth and, thus, the amount you can secure with a reverse mortgage. And a simple qualification is always beneficial, but especially this July when the need for additional funds, thanks to inflation, interest rates and stock market uncertainty, is elevated. A reverse mortgage isn't a one-size-fits-all solution for seniors, but the benefits of pursuing one can be broadly applicable in the economic climate of July 2025. With the ability to fill in gaps left over from Social Security payments, no concerns over repayments (and interest rates) in today's elevated rate climate and relative ease of qualification compared to alternative funding sources, a reverse mortgage could be the solution to your financial problems both this month and in the future.
