Consumer Guide: Reverse Mortgage / Home Equity Conversion Mortgage (HECM)

Reverse Mortgage/Home Equity Conversion Mortgage (HECM)

A reverse mortgage can be an appealing option for many seniors looking to supplement their income during retirement. This type of loan allows homeowners to borrow money against the equity in their home and receive payments, either as a lump sum, a line of credit, or as monthly payments. However, reverse mortgages are not without risks, and it’s important to fully understand how they work before making any decisions. In this guide, we’ll walk you through the ins and outs of reverse mortgages, including the pros and cons, eligibility requirements, and how to choose a reputable lender.

The goal of the first part of this guide is to offer information on the reverse mortgage product and potential uses for a reverse mortgage. The second details what NAOSA Reverse Mortgage Professionals advise to protect yourself.

There are many places these loans can be obtained. NAOSA recommends finding a lender who is local, experienced, and specialized (only does Reverse Mortgages).

The program should fit and assist in solving the concerns mentioned earlier in this document. You should not be told to withdraw more funds upfront than you need, but encouraged to allow these funds to remain in the line of credit. Any lender who encourages you to take a large, unneeded cash withdrawal is not acting in your best interest.

Tips From the Experts: Key Factors to Consider When Considering a Reverse Mortgage

Note:  Items listed below as a NAOSA Gold Standard of Professional Practice™ are business practices required for NAOSA professional membership. For more details, please visit the NAOSA Consumer Guides page.

Always consult with a third party trusted professional prior to agreeing on a loan (NAOSA Gold Standard of Professional Practice™)*

Experts advise all consumers to consult with a trusted professional with knowledge of their financial situation and goals when considering a reverse mortgage. NAOSA members will always If a consumer does not have one, you can find a NAOSA financial planner or similar professional to consult. You may also want to include a close relative or trusted friend in the process of obtaining a reverse mortgage. NAOSA members are required to follow this expert recommendation when assisting clients with reverse mortgages, ensuring that they consult with a trusted professional who possesses knowledge of their financial situation and goals.

This one step is vital to ensure that consumers are not simply being sold a product and that the reverse mortgage fits in with the overall financial plan. Any legitimate reverse mortgage professional should welcome this recommendation as an opportunity to educate and meet more professionals who work with older adults. If the professional objects, NAOSA recommends to immediately cease speaking with this individual

Always remain on the title of your home

You or your spouse must always remain on the title to your home (there are exceptions, such as if a house is part of a trust or part of a life estate). There are also provisions that allow a non-borrowing spouse to stay in the home. However, once the last borrower or nonborrowing spouse leaves the home, the loan is due. There are no prepayment penalties, and you can sell your home anytime. Should anyone state anything different, immediately cease speaking with that individual.

Do not take out an unneeded cash withdrawal

You should not be told to withdraw more funds up front than you need, but encouraged to allow these funds to remain in the line of credit. FHA has set maximum withdrawals to help protect borrowers. Even so, do not take a large, unneeded cash withdrawal. Any lender who encourages you to do so is not acting in your best interest.

Do not borrow money for unneeded home improvements

Be sure the money you are taking out of the equity of your home is a must-have. Although a new kitchen would be nice, it's probably not a good use of your equity in your retirement years.

Are you a professional in the reverse mortgage field?
We welcome your constructive input to assist in the protection of all consumers. Please contact us.

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NAOSA requires members to act in utmost good faith when working with clients. Members must agree to act in a fiduciary manner in a way that the member reasonably believes to be in the best interest of the client. In addition to compliance with all federal and state regulations, each professional member of the National Association of Senior Advocates must also follow and act in accordance with the NAOSA Consumer Guides published herein.  Members who are found not in compliance with these standards will be censured, with membership subject to revocation.


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