Do Interest Rate Caps on Reverse Mortgages Matter?

The answer is maybe, but probably not for the reason you think. Rate caps restrict the movements of interest rates, and the conventional wisdom is that more restrictive caps are better for the borrower, right? Not necessarily.

Of course, we do not know what the future holds, but the easier question to answer is have they mattered in the past? While that depends on which Home Equity Conversion Mortgage (HECM) product was selected and when the loan was originated, I can answer the question.

Keep in mind the following items when discussing reverse mortgage rate caps:

  • Monthly-adjusted HECMs do not have regulated cap structures. Historically, they have been offered with a Lifetime cap of 10% above the starting rate. Only in recent years have 5-cap monthly ARMs been offered.
  • Annually-adjusted HECM ARMs do have regulated cap structures – the rate cannot move more than 2% (up or down) from year to year, and no more than 5% (up or down) from the starting rate.
  • The LIBOR index was used from 2008 to 2020. However, for this analysis we’ll focus on the currently-used 1-year CMT index which dates back to the origins of the HECM program.
  • The interest rate is the sum of the lender margin plus the appropriate index rate. Because the margin never changes and is not relevant to the analysis, we will only focus on the index portion.

Monthly HECM – 10% Lifetime Cap

Historically speaking, the monthly 10-cap HECM has never had interest rates restricted. We know this because the 1-year CMT has ranged between a low 0.06% and high 9.78% since the foundation of the HECM program in the late 1980s. Consequently, the interest rate has never moved more than 10% (up or down) during that time.

Monthly HECM – 5% Lifetime Cap

It doesn’t appear the monthly 5-cap HECM has been capped either. However, it should be noted that this cap option is relatively recent – offered on and off over the last 10 years when index rates have been low.

Annual – 2% Periodic and 5% Lifetime Caps

YES, this option has been capped in the past. Remember, annually adjusted HECM rates cannot go up OR down by more 2% from year to year or 5% over the life of the loan. Most of the restricted rates occurred on the lower bound (falling rates), not on the upper bound (rising rates).

For example:

Consider a borrower that obtained a HECM 20 years ago in January 2001.

  • Starting date: 1/1/2001
  • Starting index rate: 4.81%

The following chart demonstrates how the Annual HECM cap structure restricted the interest rate for this borrower over a 20-year period:

As you can see, this borrower’s interest rates would have been capped three times over the last 20 years; all three were a result of interest rates falling rapidly. Consequently, this borrower’s average index rate over the life of the loan is higher – calculated at 1.75%. A borrower with a monthly adjustable product would have benefited from an average index rate of 1.58% where their rates were free to drop freely.

While most borrowers think more restrictive caps protect them and always work to their advantage, this example proves that is not always the case. The monthly adjustable with 10% caps had lower index rates while the annual product with more restrictive (2%/5%) caps had higher rates because of the cap structure.

For more information on reverse mortgages, please subscribe to this blog and consider buying your copy of Understanding Reverse.


Bring on 2021!

Of course, it goes without saying that 2020 had its challenges. However, it was a rewarding year as well – our products and services have helped many older homeowners endure an exceedingly difficult time.


Once again, the book has been updated for the new year. This seventh edition includes approximately 70 changes, including updated language related to rate indices, new HECM limits, and a new chapter titled, “What are the Income Requirements?

The book is now available on Amazon as well as our website.


If you choose to purchase books directly from our website, there is one very notable change. The back is designed to promote the lender, instructor, referral partner, or loan originator that is providing the book. Your books should market you and your services, not me, right?

Notice there’s no price, barcode, ISBN#, or author bio. Instead, there is now room for you to market your business with a business card sleeve.

Note: Recommended business card sleeves can be found here.


Some of you know that we did a soft launch of three smaller books in Q2-2020. This includes our Homeowner Guide, Financial Planning Guide, and Home Buying Guide.

The feedback we’ve received has been excellent. These new books are affordable and tailored to different audiences. In addition, these marketing pieces strip out unnecessary regulatory language and highlights just what the audience needs to know.


The biggest request we received this year was to make smaller quantities of the resource guides available to loan originators and brokers. So, our website now allows any quantity from 10 to 1,000 for ALL products. For example, individual loan originators can now choose to buy as few as 10 Home Buying Guides to leave with local real estate professionals.


For our larger lenders using Understanding Reverse or any of the three resource guides for marketing campaigns, we now offer custom branded versions of these books with a minimum print run of 1,000 copies.

Please contact me for details.

Dan Hultquist

What are the INCOME REQUIREMENTS for a reverse mortgage?

Many still claim reverse mortgages do not require income, and prior to 2015 they would have been correct. That changed when HUD began requiring every lender to examine the financial capacity of the borrower and the sustainability of each HECM loan. Residual income analysis can be summarized using the following 3-step process:

1. Calculate effective monthly income

The underwriter will calculate monthly income, including social security benefits and employment income that is likely to continue for three years. The underwriter may also consider pension, IRA, 401(k), rental, disability, annuities, and many more sources of income or cash flow. Even assets may be counted as income. This is called imputed income or dissipation. In this context, “dissipate” means to spread the after-tax value of the asset over the youngest borrower’s remaining life expectancy.

2. Subtract monthly expenses

The underwriter will then consider monthly debt obligations from the credit report as well as a monthly calculation of property charges for all owned real estate, including but not limited to, property taxes, homeowner (hazard) insurance, and Homeowner Association (HOA) dues. The underwriter will also estimate maintenance and utility charges by multiplying the square footage of the subject property by 14 cents.

3. Compare the residual income to HUD’s requirements

HUD requires that residual income be sufficient to pay for items that cannot be documented with a credit report. Those household costs tend to vary by region and family size. Therefore, the underwriter will use the following charts to determine the required threshold:

Required Residual Income by Region and Family Size

States by Region

If it does not appear that there is sufficient residual income, there are several compensating factors that an underwriter may consider. In addition, family size may be reduced if an underwriter wishes to document the income and credit history for a non-borrowing household member that has the financial capacity to carry their own weight.

If the residual income is still not sufficient, a portion of the principal limit may be earmarked for paying property charges. This is accomplished by using a Life Expectancy Set-Aside (LESA).

For more clarification on how the reverse mortgage works, please subscribe to this blog and consider purchasing your copy of Understanding Reverse.

Dan Hultquist

Does the HECM LOC increase “dollar-for-dollar” with each prepayment?

One of the great advantages of the adjustable rate Home Equity Conversion Mortgage (HECM) is the ability to draw funds from the line of credit (LOC) when needed. For this reason, the HECM ARM is often preferred over the fixed rate option which does not allow for an open line of credit. Furthermore, those funds left in a line of credit LOC will tend to grow at the same rate as borrowed funds.

In fact, there are two factors that drive growth. The first is what I call “organic” growth where the LOC naturally increases at the same rate as the loan balance. The second is what I call “prepayment” growth. This creates one of the lesser-known advantages of the product – the flexibility to pay back funds when NOT needed. These payments are called “voluntary partial prepayments.”

Sadly, there has been widespread confusion about the application of prepayments with a reverse mortgage. Let’s be clear – when a voluntary prepayment is made by a homeowner with an adjustable rate HECM, the line of credit increases, dollar-for-dollar, at the time the payment is posted.

Where does it say that?

In addition to the HUD formulas for calculating Net Principal Limit, there are three references that serve as the basis for prepayment growth:

  1. HUD Handbook 4235.1 CH 5-12C

A borrower may choose to make a partial prepayment to set up or to increase a line of credit without altering existing monthly payments.  By reducing the outstanding balance, the borrower increases the net principal limit.  All or part of the increase in the net principal limit may be set aside for a line of credit.

  1. Adjustable Rate Note

A Borrower may specify whether a prepayment is to be credited to that portion of the principal balance representing monthly payments or the line of credit.  If Borrower does not designate which portion of the principal balance is to be prepaid, Lender shall apply any partial prepayments to an existing line of credit or create a new line of credit.

  1. HUD Handbook 4330.1 CH 13-21B

Establish Or Increase A Line Of Credit.  A mortgagor may choose to make a partial prepayment to set up or to increase a line of credit without altering existing monthly payments. By reducing the outstanding balance, the mortgagor increases the net principal limit.  All or part of the increase in the net principal limit may be set aside for a line of credit.

But what gets paid back first?

We know that certain parts of the outstanding loan balance get paid pack first with HECM prepayments. We often call this the “servicing waterfall” or “prepayment waterfall” and is useful to the servicer, the investor, and the client for tax and accounting purposes. However, the application of prepayment should not impact the resulting LOC credit for future draws. If that were true, then repeated borrowing and prepayment could leave the borrower with no significant balance AND no LOC. Furthermore, the servicer would be out of balance with HUD’s system of record (HERMIT).

The LOC does not care what portion of the loan balance was paid back when a payment is applied. All it knows is that the Net Principal Limit has now increased. In the regulations above, HUD is clear that what increases the LOC in these cases is a reduction in the outstanding balance. It does not matter what portion of the loan balance was reduced.

Can you show me an example?

Sure. One way to explain this concept is with a simple equation:


For most HECM loans, the Line of Credit at any given time equals the Current Principal Limit minus the Loan Balance. In other words, the line of credit equals what you can borrow minus what you have already borrowed. So naturally, removing $5,000 from the loan balance will increase the line of credit.

It is also important to know that HUD regulations require that ALL parts of this equation grow monthly at the same rate – 1/12th of the current interest rate and MIP rate.

So, consider a HECM ARM with no set-asides, 3.0% interest rate, 0.5% MIP rate, and a Principal Limit of $150,000. If the borrower has a loan balance of $100,000, that leaves $50,0000 in the LOC.

$50,000 = $150,000$100,000

After the prepayment of $5,000, and monthly accruals (1/12th of 3.5%), the next servicing statement should read the following:

$55,146 = $150,438$95,292

Notice that because of monthly accruals, the net increase in the line of credit (+$5,146) does not identically match the net reduction in loan balance (-$4,708). The reason for this is two-fold 1) the Current Principal Limit is also increasing, and 2) the accruals in dollars will be in proportion to the amount to which the rate is applied.

Essentially, there is a dollar-for-dollar impact at the time the payment is posted, but the loan accruals at the end of the month make it appear as though this is not the case.

For more clarification on how the reverse mortgage works, please subscribe to this blog and consider purchasing your copy of Understanding Reverse.

Dan Hultquist

How and when does my reverse mortgage rate adjust?

Rates are extremely low right now, and I’m not just talking about traditional fixed rate mortgages. When reverse mortgage rates drop, it’s highly beneficial to new reverse mortgage prospects as well as for existing borrowers with federally insured reverse mortgages called a Home Equity Conversion Mortgages (HECMs). As a result, I’ve been asked by many loan originators and consumers to explain how and when their variable rate HECM loans will adjust.


Monthly adjustable HECMs, as the name implies, adjust each month. The more popular annually adjustable HECM adjusts once every year. At closing, the lender will choose a specific annual adjustment day within HUD parameters. By convention, annual HECMs generally adjust on the 1st day of the month following the anniversary of the closing date.

For example, if you closed on July 15, 2019, your rate change would be scheduled 12.5 months later – August 1, 2020. In this example, the first of August would be your designated rate change date every year.


Yes. HUD requires the borrower to be notified of the specific rate and publication date 25 days before any rate change. Using the example above, the notification would be postmarked on, or before, July 7, 2020.


For the annually adjusted HECM, that is generally the 1-year LIBOR index published in the Monday Wall Street Journal. When the LIBOR index is phased out at the end of 2021, a comparable index will be approved by HUD and used for future rate changes.

Contrary to popular opinion, we are NOT using the rate that is “PUBLISHED” 30 days prior (or 1 month prior) to the rate change date. Rather, we are using the rate that is “IN EFFECT” 30 days prior the rate change date.

Once again, using our example above, the servicer would use the rate in effect on July 2, 2020 for the August 1, 2020 rate change.


Let’s look at published 1-year LIBOR rates at the end of June and beginning of July 2020:

  • Friday 6/26/20             0.566% *           
  • Wednesday 7/1/20      0.533%                (1 month prior to 8/1 rate change)
  • Thursday 7/2/20          0.539%                (30 days prior to 8/1 rate change)

*Note: This rate is published on Monday 6/29 and is in effect Tuesday 6/30 through Monday 7/6

In this case, the rate that was in effect 30 days prior to August 1st was the Friday June 26th rate published on Monday June 29th, even though that is more than 1 month before the rate change.

If this existing HECM loan has a 2% lender margin, the borrower’s interest rate will adjust to 2.566% on August 1st and remain at that rate for 12 months.

I hope this clarifies a rather confusing reverse mortgage concept. For more information on how reverse mortgages function, please subscribe to this blog and consider purchasing a copy of Understanding Reverse.

Reasons to Consider Your Reverse Mortgage Options Now

It’s best to plan for retirement cash flow needs, and now is an ideal time for many homeowners to look at their options. In fact, those that believe that a reverse mortgage is a last resort may find that their options could be limited if they wait.

Keep in mind, the reverse mortgage industry must be careful not to create an undue sense of urgency. Advertisements that encourage seniors to “Act now” and “Don’t miss this time-sensitive opportunity” for their financial product are often irresponsible and are often considered unethical by regulators.

Therefore, don’t misinterpret my intentions with this title. In this blog, I simply hope to educate the reverse mortgage novice on certain product details and market conditions that could impact their retirement planning decisions.

1. Credit deficiencies can reduce your options

One difficult challenge for any reverse mortgage professional is getting a homeowner qualified after they’ve missed a mortgage payment or property charge payment. Since 2015, each lender must examine every applicant’s credit history and property charge history. If a homeowner falls short of HUD’s definition of “satisfactory,” then we’ll often need to set-aside enough principal to pay property taxes and homeowner insurance for that borrower over their expected lifetime. For many younger homeowners in high-tax regions, that could be as much as $100,000 of their principal that won’t be accessible. Does that leave the borrower with enough principal to pay off their existing mortgage and closing costs? Sadly, the answer is often no.

If you are running out of cash and might be forced to miss a required mortgage payment, property charge payment, installment debt, and even revolving debt, that could be a problem. It’s very important that you investigate your reverse mortgage options before those deficiencies occur.

2. Interest rates are very low right now

Keep in mind, many reverse mortgage products consider two types of rates – long-term rates, which we call “expected rates,” and short-term rates which we call the “note rate” or “interest rate.” Some will ask, “why do interest rate even matter? After all, there’s no required monthly principal and interest mortgage payment with a reverse mortgage, right?

That’s correct, but there are two reasons why today’s low interest rate environment makes reverse mortgages more attractive:

– When long-term rates are low, HUD allows lenders to offer homeowners a higher percentage of their home’s value. If you don’t need the additional funds, the unused portion is securely held in a line-of-credit that may be available for future use. In essence, today’s low expected rates make the initial line of credit larger.

– When short-term rates are low, the amounts drawn from the reverse mortgage will accrue interest at much slower rates. Recently, some homeowners were seduced by record low rates on the 30-year fixed rate mortgage. However, many failed to notice that rates on the federally insured reverse mortgage product were even lower.

3. Market volatility

It’s hard to tell how the stock market will perform during a recession. But for retirees, that is often a poor time to draw monthly cash needs from assets that may decline in value. Some advisors will call this “sequence of returns risk.” For younger investors, a bear market is a great opportunity to buy more shares at reduced prices. However, retirees naturally pull money OUT of the market. This means they are selling investments at the worst possible time. Some call this “volatility drain.

Consider a $100 investment that declines 50% to $50. Many investors will incorrectly assume that a 50% gain will bring them back to their original value. But of course, that investor would need a 100% gain to get back on track.

Now imagine this investor was a retiree who removed $10 from the portfolio when the market was down. That retiree would need a 150% gain ($60) to get from $40 back to $100. That is the essence of volatility drain.

Fortunately, home values have remained stable, for now. Tax-free distributions from the home equity nest egg can potentially reduce your tax liability and protect a struggling retirement portfolio during this crisis.

If you, or a loved one, feels the need to leverage their home equity for any reason (e.g. retirement cash flow, in-home care, home repairs, tax strategies, etc.), then please do your research. Purchase a copy of Understanding Reverse and reach out to me or another qualified reverse mortgage professional.

Dan Hultquist, MBA, CRMP

What is necessary to PAY OFF a HECM?

I recently had the opportunity to present at our national conference alongside industry trainer, Jim McMinn. During this presentation, one talking point stood out as a misconception that needed addressed – what is necessary to satisfy a HECM loan when it matures?

The conventional wisdom is that a HECM payoff will be the lesser of the loan balance or 95% of the property’s appraised value. Unfortunately, this is only true under certain circumstances.

Consider an older borrower whose financial position has changed. Maybe it was a life insurance claim for a deceased spouse, inherited funds, or an investment that matured. Whatever the reason, if that borrower wishes to pay off a HECM loan balance, they owe the full loan balance.

There are cases, however, where borrowers or their heirs can satisfy the HECM for 95% of the appraised value. The availability of this option may depend on whether the loan is “due and payable,” who is doing the satisfying, and the definition of the word “sale.”


The borrower or their estate may sell the property at any time for the lesser of the following two values:

  1. The debt due under the mortgage, or
  2. The appraised value at the time of the sale. *

Therefore, one CANNOT arbitrarily sell the home for 95% of the appraised value and satisfy a HECM loan balance that exceeds this amount.


If the mortgage is due and payable at the time the contract for sale is executed, the threshold is reduced. This is generally the case when the last borrower has died. In this event, the borrower may sell the property for the lesser of the loan balance or 95% of the current appraised value. **

In essence, the “95% SALE” option becomes available when the HECM loan becomes due and payable.


This can get tricky. The non-recourse feature offered with reverse mortgages requires a sale of the home. Fortunately, HUD interprets the word “sale” to include any post-death conveyance of the mortgage property to the borrower’s estate or heirs. ***

Therefore, if the heirs want to keep the home AND want a discounted payoff of the HECM loan balance, they will need to show a transfer of title that occurs upon the death of the last borrower, or after. This could be in the form of a trust, a life estate, or simply probating the homeowner’s will.

The danger is that heirs who are already on title at the time of the last borrower’s death may not qualify for the reduced payoff.

For more information on details related to reverse mortgage products, subscribe to this blog and consider buying a copy of Understanding Reverse.

Dan Hultquist

  • *Reference – HUD 4330 Ch13-29A
  • **Reference – HUD 4330 Ch13-29B
  • ***Reference – FHA INFO #13-36

Can a Foreclosure Occur with a Reverse Mortgage?

The short answer is yes. ANY homeowner or estate can lose a home for various reasons. While the media sensationalizes this as “news,” they haven’t taken the time to understand reverse. But as ridiculous as this sounds to the novice, there are ACCEPTABLE foreclosures from the borrowers’ (and the heirs’) point of view.

Consider Susan, who after the death of her father decided to “walk away” from the property she inherited. That’s okay. Susan is protected by the “non-recourse” feature that guarantees her right to do this… with no recourse, even if the loan balance far exceeds the value of the property. While this type of foreclosure is often vilified by the media, it was a very favorable financial transaction for Susan’s father, and a non-recourse foreclosure was acceptable to Susan.

When we think of foreclosure, we naturally think of the most common reason traditional (forward) loans end in foreclosure – failure to make the required monthly mortgage payment. Of course, that wouldn’t make sense with a reverse mortgage that carries no monthly repayment obligation. So, it’s understandable why homeowners, their heirs, and the media are often confused when they see that reverse mortgage foreclosures happen from time to time.


While reverse mortgages don’t require a monthly principal and interest mortgage payment during the life of the loan, there are other borrower obligations contained in the reverse mortgage loan agreement. The borrower has agreed to occupy and maintain the home, as well as pay all property-related charges. Failure to do these things will cause the loan to mature. When a loan maturity event happens, the borrower (or their heirs) will often sell the home to pay off the loan balance.

For example, when the last surviving borrower leaves the home for 12 consecutive months for mental or physical incapacity (e.g. nursing home or assisted living), that is a maturity event. The borrower or their heirs will often notify the lender of their intentions to sell the property. The lender will then allow them 6 months to sell the home and HUD generally approves two 3-month extensions for up to one year. 

If no action is taken to sell the home, the lender will need to foreclosure on the home, handling the sale themselves so that the loan can be repaid.

The following are two common reasons reverse foreclosures occur:

1. No equity remains at loan maturity

When the loan balance exceeds any reasonable sales price of the home, the estate has no economic incentive to sell the home on their own. Fortunately, all reverse mortgages are “non-recourse” loans. Nevertheless, foreclosure is the mechanism that conveys title to HUD (or the Lender) so the home can be sold to pay off at least a portion of the loan balance.

2. A property tax default occurs

Failure to pay property taxes will almost always result in foreclosure. This is true whether the homeowner has a reverse mortgage, a traditional mortgage, or no mortgage at all. However, the lender is the major lien-holder on the home and is required by federal guidelines to foreclose on the property for most reverse mortgages.

Keep in mind, a reverse mortgage naturally allows the homeowner access to funds, which should theoretically REDUCE the likelihood that a borrower will default on their obligations. But with the increased financial pressures of retirement, we cannot always guarantee that homeowners will keep funds in reserve.


While nothing can be done to keep people from the grave, two measures were implemented by HUD over the last six years that have been helpful in reducing the numbers of foreclosures caused by tax defaults – Initial Disbursement Limits and Financial Assessment.

Initial disbursement limits were implemented that restrict the consumption of proceeds for the first year of the loan. Unless the borrower has large mortgage payoffs that necessitate higher draws, the borrower may be initially limited to 60% of their funds. As a result, borrowers now keep a portion of their proceeds in a growing line-of-credit available for future emergencies.

Financial Assessment requires the lender to examine the credit history, property charge history, and residual income for one primary reason – to determine whether the reverse mortgage is a sustainable solution for the borrower. To ensure sustainability, some borrowers are now required to set-aside a portion of the proceeds to pay property charges.

These two changes have reduced the number of reverse mortgages nationwide but has also reduced the number of foreclosures.

Yes. Foreclosures can happen, and they will continue to occur. Remember, Susan walked away because her father consumed more available funds during his retirement than the home was eventually worth. For more information on all forms of reverse mortgage product offerings, subscribe to this blog and consider buying the reverse mortgage resource consumers and finance professionals use – Understanding Reverse.

Dan Hultquist, MBA, CRMP

What is a Proprietary Reverse Mortgage?

On Friday, December 14th, we saw The U.S. Department of Housing and Urban Development (HUD) raise the 2019 limits for FHA’s reverse mortgage product – the Home Equity Conversion Mortgage (HECM). This means that homes valued above $726,525 are capped at that figure when calculating principal limits.

This is an increase of nearly $47,000 from 2018 and comes at a time when more non-government “proprietary” jumbo reverse mortgage products are making the opposite move – appeal to more lower value homes.

The end result is that more consumers are finding more options for accessing their housing wealth as part of a comprehensive retirement plan. Because of this shift, I have updated my book for 2019 to include the new HECM lending limits as well as a new chapter titled, “What are Proprietary Reverse Mortgages.” The following is a preview of the new chapter:

HECM or Proprietary Reverse Mortgage?

The federally insured HECM has been the dominant reverse mortgage product for the last three decades. That’s changing, however, as innovative mortgage lenders have found that certain restrictive HECM guidelines have opened the door for non-agency reverse mortgage products.

These “proprietary” reverse mortgage options still maintain many of the consumer protections of the HECM program. Reverse mortgages, FHA-insured or not, must be non-recourse loans. But, of course, these proprietary products do not charge the initial MIP (2%) or annual MIP (0.5%). So, while the rates may be slightly higher, you might find the up-front charges to be significantly reduced.


For the last few years, the phrase “jumbo reverse mortgage” was used to describe these options, as lenders were able to better serve borrowers who owned higher-priced homes.

However, these new products solve other problems that HECMs currently do not. Here are a few:

  • HECMs require condominium complexes to be FHA approved before units can be eligible for HECM financing. Proprietary products may finance units within non-approved condo projects.
  • HECMs have initial disbursement limits that often prevent borrowers from accessing more than 60% of their principal limit within the first year. Proprietary products have no such restrictions.
  • HECMs require all existing liens to be paid off a closing. One proprietary product now allows the reverse mortgage to be in second lien position.
  • HECMs do not currently allow the payoff of unsecured debt at closing. Proprietary products may allow the payoff of personal debt and other items at closing.
  • HECMs require most liens to be seasoned for 12 months before closing. Proprietary products often have no seasoning requirement.
  • HECMs require all borrowers to be age 62 or older. One proprietary product offers financing for borrowers as young as age 60.

Some are offered as first liens. Some are structured with a growing line of credit that mimics the HECM ARM. Still, others allow the loan to remain in a second-lien position in cases where the first mortgage has an attractive low rate.

For more information on all forms of reverse mortgage product offerings, subscribe to this blog and consider buying the reverse mortgage resource consumers and finance professionals use – Understanding Reverse.

If a Spouse is Under 62, Know the HECM Non-Borrowing Spouse Rules

When a spouse is not a borrower in a HECM transaction, he or she is referred to as a non-borrowing spouse (NBS). This is often due to the spouse not meeting the age requirement of 62.  Understanding Reverse – 2020 – Page 51

The Basics

A Non-Borrowing Spouse (NBS) is the spouse of a reverse mortgage borrower who will not be a borrower on the loan. But the guidelines, as well as the rationale for this designation, are more complex, and are commonly misunderstood.

Many spouses are not included in reverse mortgages because they are not old enough (age 62). However, there are other reasons for an NBS, including pre-nuptial agreements, homeowners who have been remarried and want biological children to inherit the estate, legal liability, and homeowners who don’t intend to stay married, etc.

Until 2014, all reverse mortgage loans automatically became due and payable when the last borrower died, even if a surviving spouse was still living in the home. This is no longer the case. HUD changed the guidelines so that “Qualified Non-Borrowing Spouses” may continue living in their homes following the death of the last borrower. In essence, the “due and payable” status of the mortgage could be deferred if the spouse is qualified, meaning that:

  1. The Non-Borrowing Spouse is married at the time of application and continues to be married to the borrower over the life of the loan, and
  2. The Non-Borrowing Spouse occupies the home and continues to occupy the home for the life of the loan.

Having an NBS, however, now meant the borrower would have access to less funds. This was because the funds became based on the age of the youngest spouse, which was likely the NBS.

The Designations

Lenders argued that if an NBS does not occupy the home, and is therefore not qualified for the deferral, his or her age shouldn’t be used in the calculation of the borrower’s principal limit. As a result, HUD issued new designations – Ineligible and Eligible Non-Borrowing Spouses:

  • INELIGIBLE Non-Borrowing Spouses do not occupy the home, are not protected by the NBS “due and payable” deferral provisions, and do not have their age included in the calculation of the borrower’s principal limit.
  • ELIGIBLE Non-Borrowing Spouses occupy the home, are protected by the NBS “due and payable” deferral provisions, and have their age included in the calculation of the borrower’s principal limit.

It is important to know that because an NBS has only limited protection under the reverse mortgage program, we would prefer to have both spouses on the loan if possible.

The Due and Payable Deferral Period

If the last borrower passes away, it will be imperative that the NBS “obtain ownership of the property or other legal right to remain in the property” within 90 days.

Fortunately, HUD made additional regulatory changes in 2017 that allow an NBS to remain on title as a mortgagor. While they are still not borrowers, this does eliminate the 90 day hurdle, making it easier to qualify for the deferral.

At that point, the NBS will need to make sure to keep up with all of the obligations of the HECM, including the payment of property charges, to ensure the loan does not become due and payable for other reasons.


  1. Because the NBS is not a borrower, or party to the loan in any way, no disbursements can be made during the deferral period other than repairs charges paid through a repair set-aside. This means that the line-of-credit and monthly payments will cease payouts, including a Life Expectancy Set-Aside (LESA) used to pay property charges.
  2. The due and payable deferral is only available upon the death of the last borrower. Therefore, if the loan matures for any other reason, the NBS is not eligible for the deferral. The primary concern is that 12 consecutive months of non-occupancy for mental or physical incapacity (e.g. nursing home/assisted living) is a maturity event that is ineligible for the due and payable deferral.
  3. These protections only apply to HECM loans with FHA Case numbers assigned on, or after, August 4, 2014. For loans originated prior to that date, the lender has the option, but not the obligation, to assign the loan to HUD, which may offer similar protection to the NBS.

For more information on reverse mortgage guidelines, please purchase the book Understanding Reverse, and subscribe to my blog in the upper right corner of this page.

Dan Hultquist

Reasons NOT to Consider a Reverse Mortgage

Reverse Mortgage Professionals find themselves constantly touting, defending, and pitching the numerous advantages of the federally insured Home Equity Conversion Mortgage (HECM). The primary reason they put in so much effort is not to make a sale. It is because the public is still confused and largely unaware of the lifestyle and financial planning advantages of the product. After 30 years, many older homeowners still think they lose title and ownership of their homes with this financial tool.

However, most eligible candidates are ALSO unaware of the many reasons NOT to get one. The fact is, there are individuals for whom this is not a good fit. It would be best to identify them upfront before they spend the time, energy, and money it required to complete the mandatory HECM counseling. So, let’s highlight a few conditions that could mean that a reverse mortgage might not be a good option:

  1. If the home does not fit the homeowner’s long-term needs

If the homeowner has the intention of selling the home within the short-term, or if the home does not meet their long-term physical needs, a reverse mortgage may not be a good fit. While they can certainly sell the home at any time, the program was designed to meet the needs of older Americans who wish to age in place. If you want to stay, and are physically able to stay, you have passed my first test.

  1. If the Reverse Mortgage does not provide a tangible benefit

It not only has to make sense right now, but also needs to provide a sustainable solution throughout retirement. If the reverse mortgage offers little current or future advantage to a borrower, then the homeowner should look for other options.

And using a reverse mortgage to eliminate monthly mortgage payments does not always guarantee that a homeowner will have positive monthly cash flow. New regulations, however, were implemented to ensure that monthly residual income is considered in underwriting the loan.Door

  1. If the homeowner does not adequately understand the product

A HECM borrower or their trusted advisor must be comfortable paying property charges, maintaining the home, and managing finances. Unfortunately, many are not accustomed to handling these items. In addition, some may have competency issues that prevent them from fully understanding the complex loan product for which they are applying. Consequently, HECM Counseling is required to make sure all parties understand not only the product, but also other options that may be available to them.

  1. If the homeowner wishes to protect a legacy

I reluctantly include this item on the list. Many experts don’t consider inheritance a reason NOT to get a reverse mortgage. This is because homeowners who obtain a growing HECM line-of-credit early in retirement are better equipped to decide how future expenses are paid – by the homeowner, by the heirs, or by the home.

Some homeowners, however, wish to protect their home’s equity as a legacy for their heirs and would never consider accessing home equity in an emergency. That’s a very nice gesture, and I can understand wanting to leave this world giving an inheritance to those you love. The debate becomes whether an inheritance is a right of the heirs or a gift from the parents. That will be a blog for another day.

If the homeowner wants to stay in the home, and understands the advantages for themselves and their heirs, come explore the strategic uses of home equity in retirement. For more information, subscribe to this blog and purchase the book, Understanding Reverse.

Dan Hultquist

Home Purchase with a Reverse Mortgage

HECM for Purchase began with the passage of the Housing and Economic Recovery Act of 2008. Prior to this legislation, if a homeowner in retirement wanted to relocate, qualifying for the new home often proved difficult. They would have to be eligible to purchase a home though traditional means, establish their residency in the home, and then refinance with a HECM if desired.    Understanding Reverse

Some baby boomers continue to reside in homes that are no longer ideal. Unfortunately, they are unaware of a home financing option that was built specifically for them – The Home Equity Conversion Mortgage for Purchase, or HECM for Purchase.

Older homeowners often find themselves wanting (or needing) to RELOCATE to be closer to family members, DOWNSIZE to a more manageable home, or even UPSIZE to a retirement dream home on the beach, golf course, or active adult community.

I often receive phone calls that highlight the need for this program, such as:

  • “My grandmother wants to move south to be closer to her kids and grandkids.”
  • “With my knee and hip problems, I need a single-story home, preferably one that requires little maintenance.”
  • “I want to live near my friends in a 55 and over community on a golf course.”

When physical limitations become a reality, or when individuals desire a closer connection to family, a move may become necessary. The reverse mortgage can help them move AND keep more money in their pockets.


But how does it work?

With a traditional reverse mortgage, the lender offers a homeowner a percentage of the home’s value that can be used whenever needed. With a HECM for Purchase, however, those reverse mortgage funds are generally applied to a new home’s sales price. Depending on the age of the youngest participant, the lender is generally able to contribute 40% to 75% of the purchase price.

As always, no monthly principal and interest payments are required, and the homeowner gets to retain title and ownership of the home.

Why use this product?

Most HECM for Purchase candidates are selling their current homes and relocating. These homebuyers often believe the only way to relocate AND not have a monthly payment is to purchase the home in cash – the senior nets $200,000 on the sale of their existing home and is shown homes in that price range. They are unaware that a $400,000 home – purchased with a reverse – would have the same monthly principal and interest payment – $0.

In addition, if they use the HECM for Purchase to finance a large portion of the sales price, the homeowners can retain more cash reserves. This is a great opportunity to supplement retirement savings.

What’s in the fine print?

Reverse Mortgages are offered for “PRINCIPAL” residences only. This means that the homeowner must occupy the home, and the HECM for Purchase cannot be used for 2nd homes or investment properties. In fact, the borrower must occupy the home within 60 days of closing.

Because this loan product is federally insured, the HECM for Purchase will always require upfront, and ongoing, Mortgage Insurance Premiums (MIP).

Lastly, please be aware that sometimes mistakes are made when a Realtor writes a sales contract for a HECM. HUD still restricts many forms of seller-paid closing costs for HECMs. So it’s important that the Realtor works with an experienced reverse mortgage professional who can guide everyone through the process.

If you want to know the facts about reverse mortgages, please consider purchasing my book, Understanding Reverse.

Dan Hultquist, CRMP, MBA

Don’t Confuse Me With Reverse Mortgage Facts

I can understand why there are reverse mortgage skeptics. The product is unfamiliar to most, and confusing to others. Unfortunately, no number of charts, mathematical calculations, HUD guideline references, or even my book, will ever change the minds of many that need to experience it to believe it. Like many in my industry, I must continually defend my profession to a public that often disagrees with me, but without the facts to make an educated decision.

An interesting conversation in a hotel lobby last month highlighted this defense:

Stranger: “So what brings you to San Diego?”

I’m here discussing Home Equity Conversion Mortgages, what many call “Reverse Mortgages.”

“You do know that reverse mortgages are a scam, right?”

Well, surveys show that nearly 90% of customers say they are “satisfied” or “highly satisfied” with their decision. That is extremely high for a financial product. Scams have near-zero satisfaction ratings.

“But the bank gets your home.”

That’s the most common misconception. The homeowner holds title to the home, and when they die, the home still belongs to the estate.

“Ok, but all the equity is gone, so that’s the same as losing your home.”

Actually, research indicates that most borrowers today gain equity in their first year. From there, it is generally up to the borrower to determine if they wish to consume all their equity over time.

“Ok, but the fees are so high, and you can’t defend that”

When you say “high”, to what product are you comparing? All forms of insurance and retirement cash flow have costs. Draws from a 401k are taxable, but draws from home equity are not. The fees are similar to traditional FHA loans, but the reverse mortgage offers so much more in future security. Some find the growing line of credit to be a less expensive way to fund future in-home care. In fact, others have saved more in taxes than the costs.

“You have no idea what you are talking about.”

Actually, I’m here teaching a course on this topic, and I wrote a popular book on this topic.

“Well then, you should be in prison making license plates.”

I didn’t have the heart to tell her that most states no longer allow prisoners to make license plates. Of course, some people don’t want to be confused with the facts.

When I stopped chuckling, I typed the conversation into my phone to share with my class the following day. Of course, we all had a good laugh. However, it is sad that, like many baby boomers, she hit four of the Top 10 misconceptions in a two-minute conversation, yet she continues to reject a product that was created specifically for her generation.

For more information on the strategic uses of the reverse mortgage product, please purchase Understanding Reverse – 2017 and subscribe to this blog.

Dan Hultquist

The Ideal Reverse Mortgage Candidate May Surprise You

You see it all the time – articles about reverse mortgages that begin with “They are not for everyone”, and then the author describes an ideal scenario. Sadly, many perfect candidates won’t consider a reverse mortgage because misinformed authors and consumer advocates have painted the wrong picture of the product.

Some phrases that are inaccurately used to describe the model applicant include:

  • Older homeowner
  • Cash-strapped or desperate
  • Last resort
  • House rich – cash poor

These are descriptions of traditional “needs-based” reverse mortgage borrowers. However, with the regulatory reforms of the last four years, these borrowers are now a smaller portion of the three primary uses described in my book.Of course, with any reverse mortgage applicant, we want to make sure it is their intention to remain in their home – preferably through retirement. But it may surprise you that the following may be qualities of an ideal reverse mortgage candidate today:

  • Age 62
  • Still working
  • Has about 5 years to pay on their forward mortgage
  • May never need to access the funds

Let’s look at each characteristic and why the product may be advantageous to them:

Age 62

62 is the earliest age a homeowner can obtain a reverse mortgage. Obtaining one early maximizes the line-of-credit (LOC) growth potential of the product. Telling someone to wait to get a reverse mortgage is like telling a 35-year-old to postpone saving for retirement. This is because the available funds in the guaranteed line-of-credit will experience compounded growth. These funds are expected to grow at approximately 6.25% annually, but compound monthly. At that rate, a $200,000 line of credit would grow to nearly $700,000 in 20 years, regardless of the home’s value. This LOC grows tax free, and may be drawn tax free, which unlocks many strategic options at age 82.

Still working

Many will claim the greatest advantage of a reverse mortgage is that “there are no required monthly principal or interest payments.” I would counter with, “for those that are still working, the ability to make optional payments is a greater advantage.” For those that can make payments, a reverse mortgage loan balance will drop in a similar way as a forward mortgage. However, each payment also boosts the LOC for future use.

Many pre-retirees are faced with a decision – should I accelerate payments on my forward mortgage to reduce my loan balance before retirement OR should I save additional funds for retirement cash flow. Making payments with a reverse mortgage accomplishes both objectives at the same time.

Has about 5 years to pay on their forward mortgage

Those that only have a handful of years to pay on their traditional mortgage or Home Equity Line of Credit (HELOC) naturally have low payoff amounts. If the lender can payoff those balances and closing costs, and use 60% or less of the borrower’s initial benefit amount, the initial insurance premium drops from 2.5% (generally of the property value) to 0.5%. This is an extremely low initial fee for any government-insured loan product.

For those that are carrying a moderate loan balance on their reverse mortgage, the interest rates are still expected to be relatively low for the next few years. Ideally, the borrower would make payments during the first few years to reduce the loan balance. After that, the homeowner will benefit from higher interest rates, as the available LOC will grow faster.

May never need to access the funds

The LOC works very well as an emergency fund, a “stand-by”, or even an insurance policy. There are initial costs. But the on-going costs of the loan are based on the funds that are borrowed. In other words, if the borrower never needs the funds, the carrying costs of the growing LOC may be very low.

Imagine having a loan balance of $1,000, and a LOC of $200,000. The loan balance is expected to grow only $65 in the first year. However, the homeowner can raise their deductibles on every insurance policy they hold. They can now self-insure. This reduces expenses and raises monthly cash flow. In addition, the homeowner can draw less in taxable monthly retirement income.


Of course, this is only a partial list. We haven’t begun to discuss the many financial planning implications. For example, those who do not qualify for, or cannot afford, long-term care insurance are great candidates as the home can fund future in-home care. Those that wish to relocate, upsize, or downsize, can keep more of the gains they receive from the sale of their existing home by using a HECM for Purchase.

Years ago, I wrote that when I turn 62, I WANT a reverse mortgage. Do I plan to be a cash-strapped, house rich – cash poor, desperate older homeowner? Of course not. The financial planning advantages are too strong to ignore when the benefits are properly understood.


For more information on strategic uses of the reverse mortgage product, please purchase Understanding Reverse – 2017 and subscribe to this blog.

Dan Hultquist

Waiting Comes at a Cost with Reverse Mortgages

Many financial planners are now recommending reverse mortgages, as they have finally begun to recognize the strategic uses of home equity as a retirement planning tool. Sadly, however, many will consider the product only once their other retirement funds are depleted. This “last resort” tactic has shown to be less than optimal in academic studies by Barry Sacks, Wade Pfau, John Salter, and others. When you begin to understand the dynamics of the federally-insured Home Equity Conversion Mortgage (HECM), you’ll find that waiting often doesn’t make sense.


In 2015, I wrote a piece titled Waiting Simply Doesn’t Pay. In the blog, I made the following statement:

“If you only have a basic understanding of Reverse Mortgages, then waiting appears to be the right advice. After all, older borrowers get more money, right? If I wait 5 more years, not only will I be older, but my home will be worth more, and I will have paid down my forward mortgage. These may seem like logical reasons to wait… to the novice.”

I went on to explain the following three reasons why it doesn’t pay to wait:

  1. Reverse Mortgage proceeds are based on interest rates. When rates go up, new applicants may have access to much less of their home equity.
  2. Waiting sacrifices compounding line-of-credit (LOC) growth. The LOC growth is maximized by obtaining the reverse mortgage early and letting time do its work.
  3. There is no guarantee one will qualify in the future. Financial Assessment has made it harder to obtain a reverse mortgage at a time when you are more likely to need it.

What I didn’t explain in my previous blog is that the costs and benefits of waiting are easily quantifiable.


Even if the HECM program remains unchanged, and expected rates stay low (rounding to 5.0% or lower) in the future, the incremental benefit of the client being one year older, averages less than 1% more in principal.

Consider a 67-year-old homeowner who wishes to wait another year when he or she is 68 years old. As you can see below, waiting one year would yield an increase in the homeowner’s calculated Principal Limit Factor (PLF) of 0.6%.Principal Limit Factors are tables, created by HUD, that determine how much a lender can offer a homeowner at the time the loan closes. In this example, a 67-year-old homeowner with a $200,000 home might have access to $111,200 at the time of closing. All other factors being equal, waiting one year yields this homeowner an increase of 0.6% or $1,200 more in principal.

If the home appreciates by 4% during this time, the homeowner would have access to 56.2% of that appreciation by waiting. Another way to express this is that a “home gain” would be another 2.2% (56.2% of the 4% increase).

This net gain of 2.8% is nice, but small when compared to the expected growth in the homeowner’s principal limit if they obtained the HECM at age 67 instead. This is because Principal Limits (for existing clients with adjustable rate HECMs) rise each year by the current interest rate plus 1.25%.

At the time of this publication, a lender margin of 2.75% plus the 1-yr Libor index shows an initial interest rate of 4.522%. When 1.25% is added, the Principal Limit growth for the same borrower during that year would be estimated at 5.772% or $6,418.

Clearly, the PLF increase is small when delayed, and the borrower has lost some of the compounding potential of the product.


To determine a homeowner’s initial Principal Limit, we use “Expected Rates”, which is the market’s best estimate of future rates. As long as expected rates round to 5% or less, the borrower will receive the maximum principal limits for their age. In the example above, we established that a borrower at age 67 today can qualify for 55.6% of a home value of $200,000.

However, if long-term rates rise to 6% while waiting, this could yield the homeowner much less in principal.

A 1% increase in expected rates would probably drive the lender margins lower to stay closer to 5%. Otherwise, waiting one year could decrease principal limits from 55.6% to 43.6%. That is a reduction of 12% or $13,344 in this example.

Incidentally, if the HECM had been secured, any future interest rate increase could be beneficial, if that homeowner holds most of his/her funds in the growing LOC.

While we don’t want to create an unmerited sense of urgency, clients need to be aware that research shows that waiting for a reverse mortgage generally isn’t optimal. NOW may be the best time to obtain one.

For more information on the strategic uses for Reverse Mortgages, please subscribe to this blog and purchase my book, Understanding Reverse-2017.

Dan Hultquist

Colder Winter May Fuel Reverse Mortgage Demand

For most of us, the bulk of our housing costs are relatively constant. Monthly mortgage payments may vary slightly as property taxes and insurance rate are updated annually. But one housing cost is often seasonal – Heating Ventilation and Air Conditioning (HVAC). It can make, or break, a budget.

One advantage of living in the south is the reduced cost of heating a home during the winter. The trade-off is the high cost of energy to cool the home in the summer. But this year, the U.S. Energy Department has forecast a significant increase in heating costs for the four primary fuels that heat America’s homes – natural gas, heating oil, electricity, and propane.

Some of these increases are due to price increases. However, according to the U.S. Energy Information Administration (EIA), weather plays a role as well.

“The latest outlook from NOAA expects winter temperatures east of the Rocky Mountains to be colder than last winter, with projected heating degree days in the Northeast, Midwest, and South about 16-18% higher.”

Colder Weather May Fuel Reverse Mortgage Demand

Here are the EIA’s projected cost increases per household this winter by fuel type:

  • Natural gas         + $116   (+ 22.4%) representing nearly 1/2 of U.S. households       
  • Heating oil          + $378   (+ 38.1%)            
  • Electricity            + $49     (+ 5.4%)
  • Propane (NE)      + $345   (+ 21.0%) in the Northeast
  • Propane (MW)    + $290   (+ 29.6%) in the Midwest

We never know what contingencies may arise that will disrupt the monthly budget. Things like inflation, low interest rates, a poor sequence of market returns, family emergencies, and health concerns can all impact a homeowner’s bottom line. For those on a fixed income, these increases in winter heating costs are significant.

Fortunately, most older homeowners have a home equity nest egg that can improve their retirement cash flow. The reverse mortgage line-of-credit (LOC) may be established early in retirement and used for unexpected expenses or emergencies. If monthly cash flow is needed, a reverse mortgage tenure or term payment may do the trick.

If you have read my previous blogs and/or my book, Understanding Reverse, you might remember that I discussed three primary uses for reverse mortgages – Need, Lifestyle, and Planning.

Understanding Reverse

Using a reverse mortgage to supplement retirement cash flow may allow the home itself to pay for increased heating costs. This can be done without disrupting traditional retirement planning. For this reason, a reverse mortgage may be used for all three of the primary uses mentioned above. Keeping the home at a comfortable temperature satisfies a need, improves lifestyle, and protects traditional retirement planning.

While the overwhelming majority of baby boomers wish to remain in their existing homes during retirement, homeownership can be expensive. I should know. I’m scheduled to replace two air conditioning units in the spring. But it may be wise for those who are at least age 62, and wish to age in place, to consider establishing a reverse mortgage line-of-credit today, and know that they can weather the winter storms as they come.


Others are warming up to the idea of using a reverse mortgage to enhance retirement. To learn more this financial tool, buy the book, Understanding Reverse, and subscribe to this blog.

As this is the last blog post of 2016, I want to thank those of you that have made Understanding Reverse the top-selling book on Home Equity Conversion over the last two years. Stay tuned for the release of the 2017 edition, and have a Merry Christmas and a Happy New Year.

Dan Hultquist

The Reverse Mortgage: Is it really that complicated?

Is the Reverse Mortgage as simple as some claim? Or is it a highly complex financial tool, as the Consumer Financial Protection Bureau describes it?

While it may appear that these views are mutually exclusive, they are not. However, the underlying concern is one that congress, regulators, financial planners, lenders, and consumers all need to better understand.


The reverse mortgage concept is simple and can be explained in a sentence or two. In its most basic sense, a reverse mortgage is any loan program that defers the repayment obligation until a later date.

More specifically, it offers a homeowner the ability to use a portion of his/her home’s equity, it creates a lien, and it delays repayment until the home is no longer the primary residence of the last borrower. That is pretty basic and easy to understand. This holds true for all reverse mortgages, including the Federally Insured Home Equity Conversion Mortgage (HECM), single-purpose reverse mortgages offered by local government entities, and proprietary reverse mortgages.


However, the “concept” of a reverse mortgage and the “product” itself are quite different.

The Consumer Financial Protection Bureau (CFPB), which is charged with a degree of oversight of the mortgage world, believes the reverse mortgage is complex. In 2012, the CFPB commented on the complexity of the HECM product in their 231-page Report to Congress stating,

Reverse mortgages are inherently complicated products that are not easy for the average consumer to understand.

Looking back, it’s hard to imagine this was said in 2012. At the time, training and education on the product was relatively easy. All that was needed was to simply educate mortgage originators and clients on the program guidelines, the non-recourse feature, principal limit factors, product options, payout options, and costs.



Only 15 months after the CFPB report was published, the program saw massive regulatory changes. These changes from 2013-2015 were intended to protect the HECM program, protect the consumer, and ensure the product was used as a sustainable solution for homeowners. Nevertheless, in a short period of time, the complexity of the reverse mortgage product doubled.

Does that mean the product is complicated? Not necessarily. The issue is not one of complexity, but rather a lack of familiarity. The HECM product is misunderstood simply because the terminology and concepts are somewhat unfamiliar.

As a result, industry training is quite different now, including the addition of the following concepts: initial disbursement limits, non-borrowing spouse, and financial assessment.


I received what many believed was the best forward mortgage training available when I entered the industry. Completing it took me away from home for several weeks. Having a comprehensive understanding of the forward side DOES takes time. In fact, forward originators must now comply with TRID requirements which is not mandated for the reverse side… yet.

But, while various forward product options each have their own credit requirements and debt-to-income ratios, most consumers already understand the dominant product – the 30-year fixed conventional loan. By contrast, the dominant reverse product (The HECM) and the terminology that accompanies it are relatively unknown.

Once again, the primary issue for mortgage originators, financial service professionals, and consumers alike is becoming familiar with the HECM product.

Note: To be a licensed mortgage loan originator, the standardized testing (SAFE Exam) generally includes only one question on the topic of reverse mortgages.


Yes. Wendy Peel, VP of Sales and Marketing at ReverseVision, notes that “much of the complexity lies within the varied strategic uses of the new reverse mortgage product.” Prior to 2013, reverse mortgage sales had little to do with financial planning and more to do with how much money the borrower could receive. In 2013, the program began limiting many borrowers to an initial disbursement of 60% for the first year. This, combined with an increased focus on sustainability, shifted the product back towards the financial planning uses for which it was originally intended.

Mathematically, research shows us the financial planning advantages are significant. Unfortunately, many loan originators, consumers, and most financial planners are still uncertain how to use reverse mortgages to open up retirement cash flow options and strategically manage portfolio draws in retirement.


Yes. Don’t let the unknown discourage you. The primary reason I wrote the book, Understanding Reverse, was to answer the most common questions, summarize the program guidelines, and document the regulatory sources. In fact, one of my greatest pleasures is receiving emails and letters from loan originators and consumers who thank me for clarification gleaned from the book.

The HECM product is the most under-utilized financial tool available to enhance the lives of older homeowners. We can easily solve the perceived complexity problem with proper education, not just offered to the loan originators, but also to financial service professionals, realtors, the media, and the clients themselves.

Yes, the concept is beautifully simple. Yet, the product appears complex because of a lack of familiarity with regulatory changes and appropriate financial planning uses. As we continue to develop new ways to explain this great program to a broader audience, I know we can build a better understanding of reverse mortgages.


I’d love more discussion on this topic. So, please let me know your thoughts? If you wish to attend my national broadcast on the Financial Assessment changes on October 3rd, please register by clicking this link:

Financial Assessment Review and Updated Compensating Factors

Dan Hultquist is the Director of Learning and Development at ReverseVision and authored the top-selling book on this topic, Understanding Reverse – 2016.

Getting Back to Reverse Mortgage Basics

With the regulatory overhaul over the last three years, and with more to come, the reverse mortgage program has gained positive attention in the national media and financial planning community. But, the basic concepts that every older homeowner should know have remained unchanged for the most of three decades. So, since other blog posts, including my own, discuss changes, this may be a good time to take a breather and review the core of the reverse mortgage program and what it offers.

The following is a summary of the top 10 most important concepts on my list:

  1. What is a reverse mortgage?

The most common product, known as a Home Equity Conversion Mortgage (HECM), is a federally insured loan product that allows homeowners 62 years and older to access a portion of their equity now in cash or monthly payments, or later from an established line-of-credit.

  1. What are the primary advantages?

Many clients like the freedom of having no required monthly principal or interest mortgage payments. However, they often miss the advantages gained by making periodic prepayments. Of course prepayments will reduce the loan balance. But when using the adjustable rate HECM, those payments will also boost the government-insured line of credit that is already growing.

  1. Who use Reverse Mortgages?

Older homeowners seeking reverse mortgages are a mix of those with a need for cash, those who wish to enhance their retirement lifestyle, and those with financial planning motives. However, since 2008, the reverse mortgage has also had the ability to assist those that wish to purchase a home.

  1. What are the borrower responsibilities?

It is the borrower’s responsibility to occupy and maintain the home. However, he/she is also required to pay the property charges including property taxes and homeowners insurance when due, unless the lender sets aside funds for those purposes.

  1. What is the most common misconception?

Clearly, the greatest misunderstanding is that the “bank gets your home.” This is not true, and the homeowner retains title and ownership of the home over the life of the loan, and the heirs have multiple options upon the death of the last borrower.


  1. What do the proceeds potentially impact?

Proceeds are NOT taxed as income. While the HECM may be used to enhance basic Social Security and Medicare, the proceeds don’t adversely affect those government benefits. However, Supplemental Security Income or Medicaid are means-tested programs that may be impacted if caution is not taken.

  1. What is the “Principal Limit?”

The Principal Limit represents the maximum funds that can be offered at the time of closing. This amount is tied to the relevant ages, interest rates, and the home’s value, but may be restricted in some cases during the first year.

  1. What is the non-recourse feature?

The homeowners and their estates will never owe more than the value of their homes. This is a great consumer protection for the homeowners as well as their heirs, as there is no personal liability for a deficiency created by falling home prices or a loan balance that exceeds the value of the home.

  1. Why is counseling required?

HUD felt it was important for the homeowner to be counseled by someone other than the loan originator. Therefore, a reverse mortgage applicant will need to select a HUD-Approved counseling agency and obtain a counseling certificate.

  1. What are the Financial Planning strategies?

Many are using the HECM to delay Social Security filing. Others will draw tax free distributions from their home equity, allowing them to manage their adjusted gross incomes. This may reduce their tax liability as well as Medicare premiums. Still others will draw retirement cash flow from home equity during down markets to preserve their traditional retirement funds.

For more information on the reverse mortgage product and its recent changes, please purchase Understanding Reverse – 2016. For updates on the newest round of changes, stay tuned by subscribing to this blog.


Let’s Openly Discuss this Reverse Mortgage “Scam”

Reverse mortgage lenders have been fighting an uphill battle for years. And blogs and online debates likely won’t change the overall perception (or misperception) about reverse mortgages. There will always be those who can’t help but voice their opinions about a product they simply don’t understand. Nevertheless, as an advocate for proper home equity conversion for retirement cash flow, I’m often the recipient of these negative comments. So, let’s openly discuss the so-called reverse mortgage “scam.”

The media is generally pretty quick to jump on scam coverage. And yet, the national media has actually reacted favorably toward the product reforms of the last three years, and the coverage on the topic has been positive. In addition, publications like Forbes and the Wall Street Journal have touted the prudent aspects of reverse mortgages, adding academic research from respected retirement experts like Jamie Hopkins, Wade Pfau, and others. In this respect, the financial media, and the academic community are way ahead of the game, and offer credible arguments in support of reverse mortgages.

Financial AssessmentYet, any time such articles are published in the media touting the merits of reverse mortgages, there will be those who reply “It’s a SCAM!”, “Stay away!”, and “There is a sucker born every minute”. These comments continue to show how poorly the public understands the terms of the product, and I naturally feel compelled to reply.

These negative sentiments have persisted as a result of the unregulated products offered by financial service “professionals” since the 1960’s. The truth is, reverse mortgages have been highly-regulated and safe products since the Federal Housing Administration first insured the Home Equity Conversion Mortgage (HECM) product in 1989.

In fact, Ohio State University recently released a study showing that 83% of seniors were either “satisfied” or “very satisfied” with their decision to obtain a reverse mortgage. That’s extremely high for ANY financial product. Clearly, it is not a scam, a failed government program, or a bank trying to take a home.

One argument for the Home Equity Conversion is that it is insured by the U.S. government. Well, that’s probably a poor argument. Even though I believe the Reagan administration got this one right, we live in an age where distrust of the government is at an all-time high. So there may be more effective ways to debate its validity.

In fact, I have found that replying with a simple question is a great way to open up an honest conversation – “what about them makes you think it is a scam?

  • Is it because you believe the bank takes title of the home?
  • Is it because you believe the homeowner can owe more than the value of his/her home?
  • Is it because you believe these are similar to subprime loans?
  • Is it because you believe they are too expensive for what they provide?
  • Is it because you believe they stick the heirs with a bill upon the borrower’s death?
  • Is it because you believe those who get them generally regret their decision?

None of these are beliefs are true, and yet they account for many of the objections people have about the product. Asking about their objections opens the door to education, and learning the facts from a specialist should reduce fears.

The good news is that the Financial Planning community is beginning to understand the advantages, and many now base their recommendations on research from the academic community. Top-selling author, Jane Bryant Quinn, has a very good understanding of the product and now advocates for reverse mortgages in her recent book, How to Make Your Money Last. Sadly, Dave Ramsey is still misinformed and refuses to recognize the research of his peers, as well as published papers within the Journal of Financial Planning.

We’ll continue to see comments like “worst idea ever,” “people get screwed,” and “just give the home to the bank”, and I’ll still respond. But the media, academia, and the financial planning community are moving the perception needle from “scam” to “strategic use of home equity.”

Dan Hultquist

The Reverse Mortgage, Taxes, and Government Benefits

“Accessing a large sum of cash from home equity and placing it in a bank account might be a problem for certain benefits that are “means-tested.”

 Understanding Reverse

Will getting a reverse mortgage impact my government benefits and/or my income taxes? These are major concerns that come up frequently when speaking to homeowners, especially during the month of April. And, for disclosure purposes, my first response is always:

“Keep in mind, reverse mortgage professionals are not a tax planners or financial planners, and rules regarding these items are always subject to change.”

Nevertheless, I offer general guidelines in my book, and in presentations to consumers, regarding both government benefits and taxation.


Maybe. As stated above, accessing a large sum of cash might pose a problem for some “means-tested” benefits. A means-test is a way of determining whether someone has the “means” to do without the assistance. Therefore, it will all depend on the answers to these two questions:

  1. Is the government benefit affected by means-testing?
  2. Is the amount drawn in excess of the benefit’s limits?


Basic Social Security benefits are not currently means-tested, and only a portion of Medicare is adjusted based on a homeowner’s income (MAGI or Modified Adjusted Gross Income). Therefore, we can safely say that Social Security and Medicare are NOT adversely affected by Reverse Mortgage proceeds.


However, Supplemental Security (SSI) and Medicaid have income and/or asset requirements. It will be important to know what amount, held in a bank account, could prevent one from receiving those forms of assistance. As a result, it may be best to leave all available reverse mortgage funds in a line-of-credit, and only access those funds for specific expenses (e.g. roof repair, stair lift, bathroom remodel, etc.). Furthermore, it is always a best practice for the homeowner to consult with a benefits administrator financial advisor to make sure they are not disqualifying themselves.

Will getting a reverse mortgage impact my government benefits?


Yes it can! Draws from Home Equity are not taxed as income. Therefore, showing a lower Adjusted Gross Income can reduce premiums surcharges for that portion of Medicare that is means-tested on income.

In addition, even small draws from a reverse mortgage may eliminate the need to file for Social Security benefits too early. Delaying social Security may have significant advantages until age 70, and even a one year delay can improve a homeowner’s retirement cash flow.


This is another major concern that comes up frequently when speaking to homeowners.  Draws from home equity are not considered a taxable event (Federal or State Income Tax) and therefore do not adversely impact income tax liability.

However, if funds are drawn and placed into a bank account, they become an asset where interest may be earned. Any interest received from a new, or higher, bank account may be taxable moving forward.

On the flip side, when a homeowner draws part of their monthly cash needs from home equity instead of a taxable retirement income source, they may have the opportunity to reduce their marginal tax rate, which, in turn, can reduce their overall tax liability.

In addition, there may be cases where accrued interest, paid on a reverse mortgage loan balance, may be deductible just as with traditional, forward, mortgages. Keep in mind, reverse mortgages do not require monthly principal and interest payments. So, interest will generally accrue, but is not “paid”, and there can be no potential deductions unless a borrower actually makes prepayments.

Dan Hultquist

To learn more about how reverse mortgages, and how they can be used in financial planning, subscribe to this blog in the right-hand margin and get a copy of the top-selling book on the topic – Understanding Reverse.

Marshmallows and the Reverse Mortgage Line of Credit Growth

Delayed gratification is the principle that resisting a SMALLER reward today may lead to a LARGER reward later. Yet how many people are really willing to wait for something better?

Consider the famous Stanford Marshmallow Experiments conducted in the early 1970s. Children were offered one marshmallow immediately, but two marshmallows if they waited only 15 minutes to consume it. According to Wikipedia, “In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI), and other life measures.”

The children ONLY had to wait 15 minutes for their reward to double. How much harder is it for many homeowners to wait approximately 10 years for their available reverse mortgage funds to double? But, research shows it is indeed worth the wait.

Line of Credit Growth

The growth associated with the federally insured reverse mortgage is one of the hidden gems of the Home Equity Conversion Mortgage (HECM) program. For those homeowners who obtain a reverse mortgage as soon as they are eligible (62), and leave the funds in the line of credit (LOC), their delayed gratification comes in the form of guaranteed growth.

Reverse Mortgage LOC Growth

The LOC grows at current interest rates, which means many homeowners should want their interest rates to rise. It is also very secure, as the Federal government guarantees that those funds will be available to homeowners as long as they occupy their homes and abide by program guidelines. The LOC will never be frozen, reduced, or even eliminated if home values decline. In other words, you can trust the one who distributes the marshmallows.

Social Security Delays

Delaying Social Security has a similar benefit. Imagine an 8% increase in monthly benefit each year delayed until age 70. Yet, according to data from the Social Security Administration only 1.1% of men and 1.7% of women are willing or able to wait until age 70 to draw file for their benefits.

If reverse mortgages are so great, why is nationwide use of the program down?

Again, it is built for delayed gratification. The reverse mortgage is a great planning tool, but it is no longer designed for reckless massive cash draws upfront. For example, until September of 2009, homeowners could access a percentage of their homes value that was roughly equivalent to their age. A homeowner, age 62, would qualify for 62.5% of his/her home value, and a 95 year old would qualify for 90%. How can any homeowner resist that kind of immediate gratification? Reverse mortgage advertising was unnecessary because homeowners willingly drew large sums, knowing they could never owe more than the home’s value.

In 2013, however, the updated “New Reverse Mortgage” installed restrictions on how much can be drawn upfront. A homeowner may have an initial principal limit of $200,000, but unless he/she is paying off a large loan balance, that homeowner will likely have access to only $120,000 (60%) in the first year. The additional $80,000 (40%) is generally kept in the growing line of credit. These regulatory changes became a form of forced delayed gratification.

The reverse mortgage has been refined over the years, and is very attractive for many types of retirement planning needs. Nevertheless, it is now unattractive as a massive cash-out refinance tool, as the product was once used.

Several years of research has shown that mathematically, it does not make sense to wait to obtain a reverse mortgage. It does, however, make sense to get one as early as possible, and not draw from the available funds until later… if you can resist.

Those children who resisted the marshmallows in 1972 will be eligible for a Home Equity Conversion in approximately 13 years. If I were a betting man, I would wager that they will have significant home equity, are more likely to delay social security, and will enjoy watching their reverse mortgage line of credit grow every month.

If you want to learn more about the strategic use of home equity in retirement, please subscribe to my blog and purchase my book, Understanding Reverse.

Dan Hultquist

Social Security Optimization with a Reverse Mortgage

When discussing Social Security and Reverse Mortgages, most professionals have always responded that “distributions from a reverse mortgage do not adversely affect basic Social Security benefits.” That is true, as basic Social Security is not a “means tested’ program. But that is only half of the story. The Reverse Mortgage can actually be used to ENHANCE a homeowner’s Social Security benefits.

Social Security strategies are critical to retirement planning

Let’s back up, and discuss the current reliance on Social Security. According to the Social Security Administration:

  • 51% of the workforce has no private pension coverage, and
  • 34% of the workforce has no savings set aside specifically for retirement.

As a result, over 64% of aged beneficiaries currently receive at least half of their retirement income from Social Security.

Over 50 years ago, Congress changed Social Security to allow Americans to claim benefits at age 62. And almost ¾ of the American population will draw Social Security at that age. At that time, however, the benefits are reduced. Currently, age 70 is the age at which retirees can maximize their monthly benefits.Social Security Optimization with a Reverse Mortgage

Many retirees SHOULD delay Social Security, but don’t

Of course results may vary based on earnings history and cost of living increases, but Social Security benefits will generally increase 8% (of full retirement benefit) for each year that is delayed until age 70. The end result is higher monthly payouts at age 70.

Some seniors will continue to work during some, or all, of the years leading up to age 70. According to Falling Short: The Coming Retirement Crisis, “Individuals who delay receiving Social Security benefits from 62 to 70 increase their monthly benefits by a full 76%.”

However, according to Social Security expert, Cindy Lundquist, the 76% estimate may be a little misleading. That figure assumes that the individual continues to work beyond age 62. She states “If you are not working from 62 until age 70, the increase in benefits may be closer to 54% to 57%.”

So, how many people actually take advantage of this opportunity to delay until age 70? According to data from the Social Security Administration only 1.1% of men and 1.7% of women wait.

Most people do not know how long they will live. Baby Boomers, however, have longer expected life spans than the generation before them. This makes Social Security delays especially attractive. However, if a retiree is in poor health and anticipates a shorter lifespan, this may not be the right strategy. For them, it may make sense to opt in early.

The problem has always been that retirees are counting on that income at the moment they retire. They don’t want to wait. That is precisely why many in their 60’s are turning to the Reverse Mortgage to fill the gap in their retirement income during that time.

But what about all the money they won’t get from 62 to 70?

Social Security is not about accumulation, but rather sustainability. Opting in too early could cause poverty if you live longer. If you opt in too late, you simply risk not receiving your Social Security benefits if you die. As Jack Guttentag (aka The Mortgage Professor) so eloquently states,

“Avoiding poverty risk is more important than avoiding mortality risk. If I don’t avoid poverty risk, I may be forced to endure poverty in my old age. If I don’t avoid mortality risk, in contrast, I won’t be around to lament the money I didn’t draw.”

In a nutshell, retirees can defer Social Security benefits and supplement their retirement income with tax-free draws from a Reverse Mortgage if needed. The objective is to get to age 70 comfortably, at which point monthly Social Security benefits are maximized.

For more information on the strategic uses for Reverse Mortgages, please subscribe to this blog and purchase my updated book, Understanding Reverse.

Dan Hultquist

This is not intended to be legal, tax, or financial planning advice, and Reverse Mortgage professionals (myself included) are not social security experts. For a recommendation on the use of home equity during retirement, please consult a Financial Advisor who understands the strategies for home equity conversion and retirement cash flow.

man in black long sleeve shirt and white coat

WAITING SIMPLY DOESN’T PAY when getting a Reverse Mortgage

When making big decisions, procrastination is only natural. I fight this battle every morning when I have to sort out which projects are IMPORTANT, and which projects are just EASY. Unfortunately, making estate planning decisions based on an understanding of Tax Law, Social Security strategies, Medicare guidelines, market conditions, and interest rate projections, is not easy. After 13 years in financial services, I only know a few individuals who have a comprehensive understanding of these topics. So, unless you happen upon a good Financial Advisor, these decisions can be difficult to make.

Therefore, when a Financial Planner tells a homeowner that their funds will run out at age “X”, the EASIEST solution is to say:

“If I live to age ‘X’, I will consider a Reverse Mortgage then. Otherwise, I will crack open the home equity nest egg by selling the home. I’ll then move into a retirement home or move in with family members.”

The easy solution, however, is rarely the best. Some of the brightest researchers in the financial planning community have been publishing guidance in the Journal of Financial Planning, stating that waiting and using the Reverse Mortgage as a “last resort” simply doesn’t pay. Waiting significantly reduces the amount of funds that could have been available to a homeowner who obtained one early in retirement, when interest rates were lower.


Unfortunately, few publications understand the factors that contribute to the financial planning advantages of the Reverse Mortgage program.

If you only have a BASIC understanding of Reverse Mortgages, then waiting appears to be the right advice. After all, older borrowers get more money, right? If I wait 5 more years, not only will I be older, but my home will be worth more, and I will have paid down my forward mortgage. These may seem like logical reasons to wait… to the novice.

In fact, while writing this blog, published an article stating, “The older you are, the more you can get, so it benefits you to wait.” In the same article, the author references a Certified Financial Planner stating that if your retirement income covers your living costs, “There’s no reason to take out a reverse mortgage now. If you run short of money later on, you could take out a reverse mortgage then.”


  1. Reverse Mortgage proceeds are based on interest rates

Why is this important? Because rates are low right now, allowing homeowners to maximize their proceeds. If a homeowner waits, and rates go up, HUD’s principal limit factor tables require the homeowner to get LESS with a Reverse Mortgage – in many cases, a lot less. The FED recently announced a rate hike, and their plan for more over the coming years. While there is no way to know future rates, most analysts believe they should, and will, go up. This could dramatically reduce the proceeds for future applicants.

WAITING SIMPLY DOESN’T PAY when getting Reverse Mortgage

WAITING SIMPLY DOESN’T PAY when getting Reverse Mortgage

  1. Waiting sacrifices compounding line-of-credit (LOC) growth

The available LOC grows at current interest rates. If a homeowner gets a Reverse Mortgage now, the available line-of-credit (LOC) will grow faster as interest rates go up. In fact, the LOC is often projected to exceed the home’s value if held long enough. Unfortunately, homeowners who wait will sacrifice this compounding LOC growth that could have been working in their favor as interest rates go up.

  1. There is no guarantee one will qualify in the future

The Reverse Mortgage program changes periodically. While some changes can be advantageous, others may eliminate the program as an option.

Consider that many homeowners still believe that credit history and income do not matter. Even some outdated websites still state “no credit or income requirements.” Unfortunately, some of those who decided to wait until a Reverse Mortgage was desperately needed, found that they no longer qualify under the new financial assessment guidelines.

While we don’t want to create an unmerited sense of urgency, our clients need to be aware that research shows that waiting for a Reverse Mortgage generally isn’t optimal and that NOW may be the best time to obtain one.

For more information on the strategic uses for Reverse Mortgages, please subscribe to this blog and purchase my book, Understanding Reverse.

Dan Hultquist

What is a HECM to HECM Refinance?

A HECM, or Home Equity Conversion Mortgage, is the technical term for the federally-insured reverse mortgage. Therefore a HECM to HECM refinance (also known as a H2H Refi), occurs when the borrower is paying off an existing HECM with a new HECM.

These reverse mortgages are a little different from traditional HECMs that pay off existing forward liens. In fact, the National Reverse Mortgage Lenders Association (NRMLA) just issued updated guidelines to prevent “loan flipping” or “churning”, a practice where a loan originator repeatedly refinances an existing HECM borrower with no bona fide advantage to the borrower.

Why would someone refinance their HECM anyway?

The HECMs with Adjustable Rate Mortgages (HECM ARMs) have a built-in disincentive to refinance – the borrower’s net principal limit (how much they can borrow) continues to grow over time. This means that homeowners who have not borrowed all of their available funds have a growing line-of-credit that often makes refinancing unnecessary.

However, there are many reasons why a current reverse mortgage client may want to refinance into a new one. Here are just a few:

  • A homeowner who is recently married may want his/her new spouse added to title and be listed on the note. With a H2H Refi, the new spouse would have additional protection that the reverse mortgage offers.
  • Property values may have increased, offering the homeowner additional funds.
  • A H2H Refi may be needed if the homeowner wishes to change loan programs (Fixed Rate or ARM), or if they wish to reduce their interest rate.

One additional reason for a H2H Refi is that prior to 2008, many homes were capped by FHA county lending limits that reduced the amount of funds available for higher-priced homes.   In 2008, the Housing and Economic Recovery Act (HERA) established a higher national lending limit ($417,000), and then it raised again in 2009 ($625,500). For this reason, homeowners with higher-valued homes who obtained their HECMs more than 6 years ago, might find the program even more attractive today.

What is the IMIP Credit?

One nice advantage is that the borrower may get credit for the amount of Initial Mortgage Insurance Premium (IMIP) they paid on their last transaction. This happens regardless of how long it has been since their previous closing.


What are the updated guidelines?

The following are recent guidelines/restrictions that are designed to prevent “loan flipping” or “churning” of reverse mortgages:

  1. The 18 Month SEASONING REQUIREMENT is easy… the new FHA case number shall be no sooner than 18 months from the date of the prior closing.

Even after 18 months, there must be a “bona fide advantage” to the consumer. This means that the refinance will need to originate from a written request to add a family member to the loan, OR the following 2 tests must be passed:

  1. The CLOSING COST TEST is a little more complex. The increase in principal limit must be at least 5X the costs of the transaction.

For example, a loan with $5,000 in closing costs must produce an increase in principal limit of at least $25,000.

  1. THE LOAN PROCEEDS TEST is the newest guideline. The available benefit amount from the refinance must be at least 5% of the borrower’s principal limit.

For example, a borrower with a $200,000 NEW Principal Limit must have at least $10,000 in funds generated by the refinance. These available funds, also known as “Net Principal Limit”, may be drawn at closing, held in a Line-of-Credit, or distributed over time in the form of monthly payments.

How do I proceed with a H2H Refi?

The borrower will need to obtain a “HECM Servicer Refi Worksheet.” This document from their current servicer will show their original Maximum Claim Amount (MCA), how much they paid in Initial Mortgage Insurance (IMIP), and the date of their last transaction. Keep in mind, prior to 2009 there were county lending limits in place. Therefore, their appraised value may have been much higher than their MCA.

For assistance with refinancing an existing HECM reach out to me, and I should be able help or find a qualified reverse mortgage professional that can assist you in your state.

Dan Hultquist

Honestly, is a Reverse Mortgage a Good Deal?

The book, Understanding Reverse, was designed to answer the top questions I received as a loan originator and educator. Now that I often find myself speaking to financial planners and realtors, however, I receive questions like:

  • “How can home equity be used strategically to fund retirement?
  • “How can a home be purchased with a reverse mortgage?

In addition, regulatory changes have altered the conversations. People want to know about non-borrowing spouses, financial assessment guidelines, and life expectancy set asides for property charges. But, the most common question I receive is still:

Is the Reverse Mortgage REALLY a good deal?

With a slight tilt of their heads, they skeptically ask this question. The question itself stems from confusion about how the product works and long-standing misconceptions. So, to clear up some of the confusion, I’ll mention the common misconceptions I have addressed in my other blogs and articles:

  • No, the bank does not get your home when you get a reverse mortgage.
  • No, the reverse mortgage is not just for the desperate and needy.
  • No, you can’t owe more than the value of your home.
  • No, it is not a government benefit. Funds you borrow become a mortgage lien.


That depends on how you use it. Is a gym membership a good deal? I don’t know. Nobody knows what the future holds. But generally speaking, if you use a gym membership properly, your strength and conditioning will improve. You then have to ask yourself how important this is to you.

One way to tell if a reverse mortgage is a good deal, is to ask those who know the product best if they would get one. It was for this purpose that I wrote the 2014 article titled, “I WANT a Reverse Mortgage When I Turn 62.”



What most people don’t understand about the prudent use of reverse mortgages is that the homeowners aren’t required to borrow all of their available funds. Unused funds are available in the form of a growing Line-of-Credit (LOC).

In fact, this compounding LOC is one of its greatest financial planning advantages! For this reason, we expect 62 year old homeowners to hold these loans for longer terms. The growing LOC may also be converted to monthly payments later in retirement, which can be used to pay for long-term care if needed.

For example, a financial planning client recently borrowed nothing at closing. The loan balance after closing the loan was the minimum, $100. In his case, the annual cost for this borrower is only $4.00 per year. Then why did he get the reverse mortgage? Because he now has a secure $250,000 LOC that is growing at current interest rates. The LOC will be there in the borrower’s later years, and will grow faster as rates go up.


Many reverse mortgage borrowers “set-it, and forget it.” They assume that the primary benefit is that they no longer need to pay monthly principal and interest payments.

Yes. Monthly principal and interest payments are NOT required. However, this mindset is not always the best financial planning strategy. Making no payments may help from a cash flow standpoint, but the reverse mortgage has a built-in incentive to make periodic prepayments if possible. Here is what happens if you do make payments:

  1. The loan balance will drop (just LIKE a forward mortgage).
  2. The LOC will increase (UNLIKE a forward mortgage) with each payment.

For example, I recently advised a client who just turned 62 and is struggling to make his monthly forward mortgage that may be paid off in three years. Using conservative estimates for interest rate changes, I demonstrated that he could:

  1. Make a slightly reduced payment on a reverse mortgage, and
  2. Pay down the mortgage in the same time period (3 years), and
  3. Have the option to skip any payments if needed, and
  4. Double his LOC in three years because of the LOC growth.

As long as he doesn’t pay below the minimum required loan balance ($100), his LOC keeps growing long into his retirement years! At that point, the LOC will cost him a few dollars per year in interest, but will create a massive emergency fund that is not dependent on the value of the home.

Yes. The reverse mortgage CAN be a REALLY good deal. But it will require the assistance of an informed reverse mortgage professional and ideally, a good Financial Advisor.

I am helping to spearhead an effort to educate the industry and the public on a better understanding of reverse mortgages. That will include the strategic uses of reverse mortgages during retirement. With the help of the National Reverse Mortgage Lender’s Association (NRMLA) and a committee of like-minded experts, we hope the perception of this wonderful product will improve.

If you want to learn more about the strategic use of home equity in retirement, please subscribe to my blog and purchase my book, Understanding Reverse.

Dan Hultquist

Legitimate Concerns about Reverse Mortgages

The press has been favorable to recent reverse mortgage reforms, yet there is still no shortage of articles that offer warnings. I believe those warnings are misplaced, and that other, more legitimate, concerns about reverse mortgages need addressed. The issues we read about are either misunderstood, or have already been addressed by industry reforms.

The media has focused on two primary issues – reverse mortgage costs, and widows losing their homes. Yet, when meeting with professionals who understand the strategic uses of home equity, I find that we share a different set of concerns. But let’s address the media’s concerns before we cover the real issues.

COSTS are not the ISSUE

A media personality once argued that “a borrower could pay as much as $10,000 in fees to get $100,000 in cash. That’s a 10% hit right off the bat.” Yes, that is expensive when the reverse mortgage is only viewed as a request for cash. However, cost becomes a minor issue when the future benefits are properly explained.

Imagine what that journalist would think if I told her “it might make sense to pay the reverse mortgage fees, but NEVER draw another penny.” It sounds ridiculous, until you view the security gained by the transaction. You could pay many times that amount in long-term care insurance that wouldn’t be needed if the reverse mortgage were structured properly.

Is a reverse mortgage expensive if it allows your financial planner to extend your retirement funds several years?

Is a reverse mortgage expensive if your tax planner can manage your adjusted gross income and save you even more in federal income taxes?

It’s getting harder to make a case that reverse mortgages are expensive. The costs are commensurate with traditional mortgage fees, and when used properly, the financial planning advantages are huge. The interest rates are favorable, reducing the long-term costs, and the non-recourse feature protects the homeowner from ever owing more than the value of the home.Financial Assessment

WIDOWS are also not the ISSUE

The reverse mortgage program is now very favorable to non-borrowing spouses who wish to remain in the home after the last borrower dies. Yet, even before recent reforms, this issue was misunderstood. There is a big difference between “occupying” a home and “owning” a home. When someone is facing “foreclosure”, it is important to know whether they are actually on title. In the media-highlighted cases, the widows were not actually owners of their homes. Therefore, the phrase “widows faced foreclosure on their homes” is misleading.

However, additional consumer protections for non-borrowing spouses became effective August 2014, allowing eligible non-owner widows and widowers to remain in their homes following the death of their spouse. The guidelines were revised again this year to give lenders additional options for handling non-borrowing spouses. As a result, it has become unlikely that these occupants would be displaced.


The concerns financial planners and loan originators have about reverse mortgages are not about the product itself. The concerns are about the people who have access to the funds – the homeowner and their “trusted” advisors.

  1. Financial planning concern

Respectable loan originators and financial planners want the homeowner’s funds to last. Homeowners generally have access to 60% of their principal limit within the first year, minus closing costs and lien payoffs. This is called their “initial disbursement limit.” After the first year, homeowners may then access the additional 40% plus growth.

The limits placed on first year disbursements have helped this issue. However, there is a growing bucket of money to draw from, and many homeowners are consuming the funds too quickly. The homeowner must set boundaries if the reverse mortgage is to be used for emergencies, insurance, and/or future retirement income.

  1. Elder financial abuse concern

As reverse mortgage professionals, we convert home equity into accessible funds. However, we have little control over “trusted” advisors who are not so trustworthy. Their influence over the homeowner can quickly turn into elder financial abuse.

According to the National Committee for the Prevention of Elder Abuse (NCPEA), the perpetrators of elder financial abuse are often “family members, including sons, daughters, grandchildren, or spouses.” Some of them have “substance abuse, gambling, or financial problems.”

Heirs also frequently feel a sense of entitlement – that their parents “owe” them an inheritance. They rationalize that it’s not “stealing” funds when they feel the funds are rightfully theirs.

Yes, there are costs. And reforms to the program were needed, adding security for non-borrowing spouses. However, the sad truth is that reverse mortgage funds are not always used properly. That is the real concern.

If a homeowner has a monthly cash flow issue, then establishing monthly payouts from the reverse mortgage can cover monthly cash short-falls. If a homeowner is using a growing line of credit for financial planning purposes, then consulting a financial advisor that has a fiduciary responsibility to act in the best interest of the homeowner would help.

When the real issues are fully understood and communicated, the reverse mortgage will be what it was designed to be – a prudent and sustainable solution for older homeowners to remain in their homes.

If you want to learn more about the strategic use of home equity in retirement, subscribe to my blog and purchase my book, Understanding Reverse.

Dan Hultquist

The Reverse Mortgage is NOT an ATM machine

Earlier in the year, I was asked to write an article for a large national publication. My primary message was that the reverse mortgage is NOT the financial product you thought you knew. With recent regulatory changes and a renewed focus on financial planning, the FHA-insured mortgage is now being used by the affluent as a form of retirement planning, longevity insurance, tax planning, and long-term care funding.

While flattered that a monthly magazine wanted to publish what I had to say, it was clear the editor didn’t understand my message. By the time it ended up in mailboxes, the headline was changed, the content was edited, and the selected image gave the reader the wrong impression that it was simply an ATM machine – the magazine literally inserted a giant ATM machine in the shape of a house!


Unfortunately, the reverse mortgage is still seen by most as an act of desperation for borrowers in need of cash. Television, radio, internet, and magazine coverage has generally reinforced this narrow view of home equity conversion.

Consequently, this is how reverse mortgages have historically been perceived:

“I need some cash. I found a tool that will pay off my mortgage. It may even give me more cash than I need. Now I don’t have to pay monthly principal and interest mortgage payments ever again. Sure, my loan balance will rise. But FHA guarantees that I’ll never owe more than the value of my home.”

While every assumption listed above is technically correct, this type of homeowner is becoming a smaller portion of the reverse mortgage pie.



People have always criticized the hammer for being a poor screwdriver. Likewise, the reverse mortgage suffers from a misunderstanding of its proper function. The new reverse mortgage is slowly being recognized as a powerful financial planning solution. But it has always been a fourth pillar of retirement income that included social security, pensions/annuities, retirement savings, and home equity.

The primary financial planning advantage is the available line-of-credit that grows and can be accessed at a later date. It may be converted to tax-free monthly income whenever needed. It can be used to delay social security, manage taxable income, and more. And because of the compounding growth, it makes sense to opt in as early as possible.

Consequently, the following is how reverse mortgages SHOULD be perceived:

“I need greater assurance that my funds will last through retirement. I have found a tool that offers a secure line-of-credit (LOC) that will be available if I need it. The available LOC grows over time, so it makes sense to obtain one at age 62. As rates go up, my available funds grow even faster. I have the option to make prepayments that reduce my loan balance and increase my line of credit. The longer I live, the more funds I have available, which may allow my home to pay for my long-term care needs.”

There were many economic factors that led to older homeowners using a reverse mortgage as an ATM machine. However, the program should be a sustainable solution for older homeowners, and a tool that those age 62 or older should consider using in their retirement portfolios.

Unfortunately, the magazine destroyed my intended message, and served to reinforce the wrong perception of how this tool should be used. But if you want to learn more about the strategic use of home equity in retirement, subscribe to my blog and purchase my book, Understanding Reverse. You will find it is likely not the reverse mortgage you thought you knew.

Dan Hultquist

Same-Sex Marriage and the Reverse Mortgage

My blogs have been, and always will be, politically neutral. And when changes to government regulations affect what I do, I simply do my best to explain how those changes impact homeowners and my role as a reverse mortgage professional. So, let me be the first to explain how the Supreme Court ruling on marriage may impact reverse mortgages.

I’ll preface by explaining that federally-insured reverse mortgages, often called Home Equity Conversion Mortgages (HECMs), have ALWAYS allowed multiple unrelated occupants to take advantage of, and receive, reverse mortgage proceeds. That has not changed. However, if an older homeowner is now getting married as a result of the court’s decision, then he/she may now have additional advantages and options with a reverse mortgage.


If one spouse has not yet met the qualifying age (62) for a reverse mortgage, that spouse may now have additional protection as a “homeowner” under the non-borrowing spouse guidelines. This protection for spouses began in August of 2014 when guidelines changed, allowing a spouse of a HECM borrower to continue living in the home following the death of the spouse listed on the mortgage. In essence, the loan is not due and payable, and repayment may be deferred. The couple will need to show that they are married at the time of application, continue to be married over the life of the loan, and that both spouses occupy the home.

Until now, non-borrowing spouse protection was limited to a “spouse” as defined by the laws of the state where they reside or the state of their celebration.



If a homeowner already has a reverse mortgage, and is adding someone to title, they can take advantage of the HECM to HECM refinance option. This is where a new reverse mortgage is obtained to pay off an older reverse mortgage. This can be done to increase proceeds, to improve the terms of a mortgage, or in this case, to add a new person to title. As long as one original reverse mortgage borrower is still on title, a spouse can be added with reduced closing costs.

This option already existed for unrelated occupants, but if two individuals are getting married as a result of the recent changes, it is preferable to have BOTH spouses listed on title and on the reverse mortgage. The primary advantage is that either spouse will have access to reverse mortgage funds if the other dies. In addition, reverse mortgages are generally not “due and payable” until the last reverse mortgage borrower dies or permanently vacates the home.


Reverse mortgage borrowers are sometimes eligible for a mortgage interest deduction on their taxes, if the loan is partially (or fully) paid pack. Same-sex couples have historically had to split up their mortgage interest deduction onto two tax returns. Unfortunately, itemized deductions that get split are often not large enough to exceed the standard deduction. So, for those homeowners where a tax deduction is an option, marriage now allows same-sex couples to file taxes jointly and take the full deduction.

Same-sex marriage will also allow a couple more flexibility in the way they hold title to their home. For example, “tenancy by the entirety” which is available to married couples in some states, is a stronger form of joint ownership. When a spouse dies, property ownership automatically moves to the surviving spouse without having to go through probate. However, it also has added protections against creditors that other forms of ownership do not have.

Keep in mind, this post was not intended to provide tax advice or legal advice. So, please consult a professional for clarification on those issues. However, if you are looking for updated guidance on reverse mortgages, please subscribe to this blog and purchase the book, Understanding Reverse.

Dan Hultquist

No. The Bank Doesn’t Get Your Home with a Reverse Mortgage

As it turns out, Ben Franklin didn’t really discover electricity. While many still believe he did, it’s simply not true. Just like this common fallacy, the complex reverse mortgage program is highly misunderstood. This was the primary reason I wrote the book, Understanding Reverse. It’s also why many reverse mortgage providers feature top reverse mortgage myths on their websites.

If I were to walk downtown and ask strangers why they wouldn’t consider a reverse mortgage at age 62, the most common response would be that “the bank would get their home.” So let’s address that misconception first.

MYTH: The bank gets your home after you die
The Federally-Insured reverse mortgage program has been around for 27 years, and homeowners never relinquish title or ownership of their homes at closing or after they die. The homeowner holds title throughout the life of the loan, and can sell it at any time with no pre-payment penalty.

So, why does this continue to be a top misconception? Historically, homeowners have used reverse mortgages to draw large amounts of home equity upfront. If there is no equity left after the last homeowner’s death, the heirs have no financial incentive in selling it. They will often sign the deed over to the lender at that time.

Is the product too complex? Do poor explanations of the product leave homeowners to make simplistic assumptions on their own? Has the improper use of reverse mortgages in the past tainted the perception of the program? These are all possible reasons for continued misperceptions.

It didn’t help when the popular sitcom, Modern Family, aired an episode where one older homeowner explains to another that with the reverse mortgage “essentially, the bank buys your home.” No! That is only reinforcing the most common misconception.


All we can do at this point is continue to promote an accurate understanding. So, the following is a list of other common myths that seem to persist:

MYTH: You can owe more than the value of the home
Many people ASSUME the estate will be “underwater” when they sell it, or when they die. Fortunately, reverse mortgages include a “non-recourse feature” ensuring that the homeowner will never owe more than the value of the home at the time it is sold.

MYTH: The heirs get stuck with a bill
TRUTH: In fact, the heirs are protected by the non-recourse feature, just like the homeowner. Of course they can sell the home or refinance in their own name. But, the home is ultimately responsible to pay back the loan balance, and any residual equity would be theirs as an inheritance.

MYTH: You might outlive a reverse mortgage
TRUTH: Even though the note lists the maturity date as the youngest borrower’s 150th birthday, if someone were to actually live that long I believe FHA would still service the loan at that point. I don’t think we need to lose any sleep over that one.

MYTH: Reverse mortgages are expensive
TRUTH: They can be expensive if used as a short-term cash-out refinance. When used properly, however, for a homeowner who wants to stay in their home, they can be very inexpensive.

MYTH: They are just for the desperate and needy
TRUTH: Sure, reverse mortgages can often help those who are house rich and cash poor. However, there are multiple financial planning options for the affluent.

MYTH: They increase your risk for foreclosure
TRUTH: Reverse mortgages do not require monthly principal and interest payments. Therefore, the primary risk for default is failure to pay property taxes. The reverse mortgage, if used properly, should reduce the likelihood of that occurring.

I was surprised to also learn that Thomas Edison didn’t invent the lightbulb – another popular misconception. While Franklin and Edison contributed significantly to the world of science, maybe the truth behind their accomplishments was just too complex for us to learn in elementary school. And as a result, that caused us to have a poor understanding of the facts.

If you want to know the facts about reverse mortgages, please subscribe to this blog and purchase the book, Understanding Reverse.

Dan Hultquist

Reverse Mortgage Financial Assessment in Plain English

Consider a doctor explaining that A blood vessel wall was damaged, causing a series of reactions to take place which stimulated platelets, resulting in coagulation in your body. You have thrombophlebitis in your lower leg, a condition we call deep vein thrombosis.

The doctor may be technically correct. But it may be more appropriate to say, You have a small blood clot, and we’ll give you medicine to dissolve it.

When you get a traditional loan, the loan officer doesn’t explain all the technical intricacies of residential mortgage underwriting. You simply want to know the rate, the terms, and when you can close.

With reverse mortgages, however, there are additional complex regulations and guidelines that must be covered, including Financial Assessment. Just like the medical profession, there is a big difference between reciting complex industry terminology and a simple explanation of the facts. As someone who generally offers the technical diagnosis, let me try to simplify this time.


Financial Assessment is intended to make sure the reverse mortgage is a sustainable solution for you. The tests aren’t aimed at disqualifying you from a reverse mortgage. They are designed to ensure that, after closing a reverse mortgage, you are likely to have the financial ability to stay in your home.

Financial Assessment Test #1

Lenders are now required to look at your credit history and your property charge payment history. Underwriters call it a “WILLINGNESS” test, but it has little to do with your “desire” to pay bills. Poor payment history simply indicates the need to set aside some funds to make sure critical property charges are paid in the future.

Financial Assessment Test #2

Lenders are also required to look at your monthly residual income. Underwriters call it a “CAPACITY” test. It is designed to ensure that the reverse mortgage product will likely leave you and other household members with the ability to pay your bills now and in the future.

Setting Aside Funds

Each reverse mortgage has a calculated amount called a “Principal Limit”. This is the maximum amount the lender is able to offer a homeowner at the time of closing. The results of Test #1 and Test #2 are used to determine whether a portion of these funds should be set-aside to pay property charges like property taxes and property insurance. The technical name for this is “Life Expectancy Set-Aside” or LESA.

These LESA funds represent a portion of your equity to which you will not have direct access over the life of the loan. However, any unused LESA funds are still part of your equity.

Fortunately, you are not charged interest on the amount that is set aside. When the lender pays your property tax bill, however, your loan balance will rise by that amount.

After spending an hour with a potential client last week, I realized that I didn’t once use technical jargon to describe financial assessment. I was tempted to say something like “based on three 30-day late installment payments in the prior 24 months and a monthly residual income shortfall for a two member household in your geographic region, we need to fully-fund a Life Expectancy Set-aside that will reduce your available net principal limit.”

I would have been technically correct. But when she disclosed information that confirmed that a set-aside would likely be required. I simply said, “Would it give you peace of mind knowing that a portion of your home equity will be set-aside so that the lender can pay your property tax and homeowners insurance each year?

She and I both agreed it would.

Dan Hultquist

They Still Misunderstand Reverse Mortgages

The money experts on TV and radio have never fully understood Home Equity Conversion Mortgages (HECMs) and the proper use of these reverse mortgages. From Dave Ramsey to Suze Orman, they have not taken the time to listen to researchers within their own financial planning community who regularly publish papers on the advantages of this financial tool. While Clark Howard has recently reconsidered his position on them, he and others still don’t tout the financial planning advantages this program offers to older homeowners.

Meanwhile, the homeowners themselves have been very happy with their reverse mortgages. The client satisfaction ratings are much higher than with the alternatives. Maybe we have not explained the basics properly to the financial media. CC000605So, let’s clarify a few items that are commonly misunderstood:

  1. You keep title and ownership of your home

That’s true. The bank does not take your home now or when you die. However, this is still the most common misconception. This may have been true for some reverse mortgages prior to 1989, but the government-insured reverse mortgage has never allowed the lender to hold title. Homeowners retain ownership of their homes throughout the life of the loan, and can choose to sell the home at any time without prepayment penalty.

However, it is possible for ANYONE who owns a home to lose it. If you stop paying your property taxes, you risk losing your home. That is true whether you have a reverse mortgage, forward mortgage, or no mortgage at all. The reverse mortgage should actually REDUCE the fear that this will happen, as periodic draws from home equity should INCREASE a homeowner’s ability to pay property charges.

  1. You will not owe more than the value of your home

One of the first items addressed in nearly every basic training on reverse mortgages is that the FHA insures against this happening. The FHA guarantees that homeowners and their heirs will NEVER be responsible for reverse mortgage debt that exceeds the value of their homes. This is called the “non-recourse” clause, and is a primary consumer protection for homeowners and their heirs.

  1. Reverse mortgages are not expensive when used properly

There are fees just like any financial transaction, and reverse mortgage fees are not only federally regulated, they are also common to mortgage transactions in general. In fact, there may be cases where the lender will pay some of those costs. If using the reverse mortgage for short-term cash, it may indeed be expensive. But that is not the intended purpose. When used over a longer term, to continue occupying the home, the upfront fees are minor when compared to the long-term benefits of a line of credit that grows tax free that may be converted later into tax-free cash.

  1. Reverse mortgages are more than a way to access cash

There is still a perception that this is a “LAST RESORT” loan. This is not the case at all. We can show that using a reverse mortgage as part of your retirement plan can extend your assets beyond what traditional retirement plans offer. Although some seniors may have a greater need than others, many simply prefer to be free of monthly mortgage payments.  Without a monthly mortgage payment, many homeowners find they can retire, maintain their existing quality of life, and enjoy their retiring years.

The reverse mortgage is also being used to purchase a home. Whether you need to relocate to be closer to family, downsize to a more manageable home, or upsize to a retirement dream home, the reverse mortgage can help keep more money in your pocket.

If you want to know more than the money experts do about the strategic uses for reverse mortgages, please subscribe to this blog and purchase my book, Understanding Reverse.

Dan Hultquist

Understanding Reverse Mortgage Financial Planning

“Financial planners, advisors, CPA’s, estate planners, and other finance professionals are realizing that obtaining a Reverse Mortgage EARLY opens up potential income later in retirement. The basic premise is that the growing line of credit (LOC) is not taxed on its growth, and is a secure collection of funds that can act as a second source of retirement reserves when needed.”

– Understanding Reverse

By now, everyone knows that homeowners, age 62 and older, can access home equity at low interest rates through the government insured reverse mortgage program. Most don’t realize, however, that a dire need for cash shouldn’t be the primary purpose of the home equity conversion.

When you hear that wealthy doctors, lawyers, and even executives in the mortgage industry are getting reverse mortgages for themselves and their family members, you can be pretty sure they aren’t trying to prevent foreclosure. They choose the reverse mortgage because there are inherent advantages for retirement planning. Unfortunately, most finance professionals don’t understand how working with a reverse mortgage professional can help their clients achieve greater financial stability during their retirement years.

Research in the Journal of Financial Planning suggests that financial planners should recommend reverse mortgages for many clients, including ones who do not have an immediate need for them. Why? In part, because many baby boomer homeowners have disproportionate amounts of their retirement savings held in real estate. 10,000 boomers are turning 62 every day, and unlike the generation before them, their retirement savings are in their homes, not in defined benefit plans like pensions. Drawing part of their monthly retirement income, tax-free, from their home equity nest eggs will help their other, more traditional, retirement funds last much longer.Couple

LOC Growth – The basis of reverse mortgage financial planning

The primary financial planning advantage is the line-of-credit (LOC). The LOC experiences compounded growth, and many homeowners will opt-in to reverse mortgages as early as possible (age 62), and wait to draw their increased funds until later as a form of tax-free retirement income. Homeowners only accrue interest on the amounts they borrow. So, this option allows them to have emergency funds that grow (again tax-free) at current interest rates. The funds are then easily converted to monthly income when traditional retirement savings are depleted. The following highlights some features of the LOC:

  • The LOC grows tax-free at current rates
  • The LOC can be converted to cash at any time
  • The LOC draws are not considered income, and therefore are tax free
  • The LOC is secure, as it is not frozen or reduced if property values drop
  • The LOC can be an effective emergency fund
  • The LOC can be used as a form of insurance
  • The LOC diversifies your home equity investment
  • The LOC increases when making prepayments

The increased use of reverse mortgages for financial planning purposes is further explained by looking at the other traditional income sources during retirement. Social Security is not sufficient to provide the income necessary to sustain an individual during retirement years. Employers have moved away from defined-benefit pension plans, and instead have opted for employer-sponsored tax-advantaged accounts. Traditional retirement savings are subject to volatile market conditions, and employment during the retirement years is often not practical, or even possible.

Indeed, financial planners, advisors, CPA’s, estate planners, and other finance professionals are now realizing that obtaining a reverse mortgage EARLY, with a line of credit option, opens up potential income later in retirement.

For more information on the strategic uses for reverse mortgages, please subscribe to this blog and purchase my book, Understanding Reverse.

Dan Hultquist

Understanding the Reverse Mortgage Non-Borrowing Spouse

“When a spouse is not included in a HECM (Reverse Mortgage) transaction, they are referred to as a non-borrowing spouse (NBS). This is often due to the spouse not meeting the age requirement.”

– Understanding Reverse

I recently had a conference call with a borrower and another reverse mortgage lender. The borrower wanted me to clarify guidelines for the competing loan officer – which I was willing to do. The loan officer’s confusion revolved around non-borrowing spouse guidelines.

In a simple sense, a non-borrowing spouse (NBS) is the spouse of a reverse mortgage borrower that will not be on the loan. But the guidelines are actually not that simple, and are commonly misunderstood. Let’s see if I can explain the rules, and why they were created.

The problem:

Some spouses are not included in the reverse mortgage. In most cases this is because they are not old enough (Age 62). However, there are other reasons – homeowners with pre-nup agreements, or homeowners who have been remarried and want biological children to inherit the estate, homeowners who don’t intend to stay married, etc. Some states and lenders may have additional guidelines called “overlays” that may also come into play here.

Regardless, these non-borrowing spouses have historically NOT been protected after the death of the last borrower. If the last borrower died, the loan became due and payable…. even if a surviving spouse was still living in the home. This is no longer the case.NonBorowingSpousePhoto

The Solution – ML 2014-07:

FHA changed the guidelines with Mortgagee Letter 2014-07 so that “Qualified Non-Borrowing Spouses” may continue living in their home following the death of the last borrower. The “due and payable” status of the mortgage could be deferred if the spouse is “Qualified”, meaning that:

  1. The Non-Borrowing Spouse is married at the time of application and continues to be married to the borrower over the life of the loan, and
  2. The Non-Borrowing Spouse occupies the home and continues to occupy the home for the life of the loan.

This created another issue: Having an NBS generally meant the borrower would have access to less funds. This was because the borrower’s available funds became based on the youngest age, which was likely the non-borrowing spouse’s age. This was true whether the NBS was qualified for the deferment or not.

The Clarification – ML 2015-02:

Some lenders argued that if an NBS is “NOT qualified”, they shouldn’t be required to use the age of the NBS in the calculation of the borrower’s Principal Limit. As a result, FHA issued Mortgagee Letter 2015-02 to create new designations – Ineligible and Eligible Non-Borrowing Spouses.

  An INELIGIBLE Non-Borrowing Spouse:

  • Does not occupy the home,
  • Is not protected by the NBS “due and payable” deferral provisions, and
  • Does not have their age included in the calculation of the borrower’s principal limit

  An ELIGIBLE Non-Borrowing Spouse:

  • Occupies the home
  • May be protected by the NBS “due and payable” deferral provisions, and
  • Has their age included in the calculation of the borrower’s principal limit

It is important to know that an NBS has limited protection under the reverse mortgage program. Therefore, we would prefer to have both parties involved, and not have an NBS. If they are under 62, we have no choice. However, FHA does NOT prohibit removing an older spouse from the loan and making them an ELIGIBLE NBS when a homeowner has a viable reason. The guidelines do, however, prohibit making the NBS ineligible so that the borrower qualifies for higher principal limits.

Rapid changes to improve the reverse mortgage program left many homeowners and some lenders confused about guidelines. I don’t mind fielding these questions, because the answers ultimately end up in my blogs, articles, and training documents. As a result, we will all have a better understanding of this great program.

For more information on reverse mortgage guidelines, please purchase the book Understanding Reverse, and subscribe to my blog in the upper right corner of this page.

Dan Hultquist

Look Who’s Getting the New Reverse Mortgage!

Since 2013, the federally-insured reverse mortgage program has gone through so many dramatic changes that it’s no longer the reverse mortgage everyone thought it was. Some of the changes added consumer protections, while others radically altered the way reverse mortgages are obtained.

Unfortunately, many perfect candidates will continue to believe that the reverse mortgage is ONLY for the desperate homeowner with plenty of equity and no cash. I don’t fault them for this – the most common reverse mortgage, the Home Equity Conversion Mortgage (HECM), has been marketed that way. However, recent modifications by the Federal Housing Administration (FHA) have highlighted the financial planning advantages for the affluent. So, let me describe the three categories of homeowners who now come to me for reverse mortgages.


  1. Reverse Mortgage for immediate NEED

Generally, these traditional HECM borrowers are house rich and cash poor. And they need money now. In many cases, we can help them. A good example might be a homeowner who needs in-home care. Monthly payments generated by home equity conversion can help when they, or their heirs, are unable or unwilling to pay for these expenses.

Many people assume that the need for money is the ONLY reason to get a reverse mortgage. Yet, this traditional type of homeowner is a smaller piece of the pie now.

  1. Reverse Mortgage to enhance LIFESTYLE

Because reverse mortgages do not require monthly principal and interest mortgage payments, obtaining one can help with cash flow. Yet, there are many other lifestyle advantages. Tenure payments are a form of monthly draw. Tenure means permanent, and these monthly payments will continue as long as the homeowner occupies the home. This is a great way to improve the quality of life of someone on a fixed income.

Others enhance their lifestyles by accessing home equity to pay for home upgrades, travel, or new vehicles.

  1. Reverse Mortgage as part of a comprehensive financial PLAN

Financial planners are now recommending reverse mortgages for clients who do not have an immediate need for them. Why? In part, because many homeowners have disproportionate amounts of their retirement savings held in real estate. Drawing part of their monthly income (tax-free) from their home equity nest eggs will help their traditional retirement funds last much longer.

The primary financial planning advantage, however, is the line-of-credit (LOC). This option allows homeowners to have an emergency fund that grows (again tax-free) at current interest rates. The funds are easily converted to monthly income later in retirement. Because the LOC experiences compounding growth, many homeowners will opt-in as early as possible, and draw their increased funds at a later date as a form of tax-free retirement income.

The HECM is still used by homeowners in need. However, research in the Journal of Financial Planning advocates that homeowners, age 62 or older, use this same program as part of a comprehensive retirement plan. Take a closer look. It’s likely not the reverse mortgage you thought you knew.

Dan Hultquist

Reverse Mortgages Really Aren’t That Funny

Most successful blogs are infused with a little humor. Parenting blogs are funny. Kids say the darndest things. Other blogs are designed to enrage you. Sometimes I don’t know if I should laugh or cry at the political ones. However, other blogs are designed to educate, inform, and explain. Mine would fall into that category. If you read my book, or read my blog on a weekly basis, you know that any sense of humor I might possess is lost in my writing.

Those who have heard me speak will know that I will occasionally try to add humor to my presentations. There was one (a broker, a borrower, and a compliance officer walk into a bar) that was pretty funny to those in my field.  And then another (a borrower and a loan officer met with a palm reader to determine product suitability) that got a few laughs.

LaughingCoupleI’ve learned, however, that home equity conversion is really not that funny. Here are a few reasons why:

What we do is misunderstood

My daughter has a great sense of humor and likes to mimic me in a deep voice, saying “I give you money, you give me house.” Of course she knows better, and just to be clear, I give people a LOT of money, and they get to KEEP title to their home. It is a common misconception, however, that somehow the bank gets the home now, or when the homeowners die. This is not the case, and of course, it’s no laughing matter.

What we do is somewhat complicated

After having spent several years counseling, originating, and training, I spent much of 2014 reviewing the Code of Federal Regulations, multiple HUD handbooks, and every FHA letter. This was done not only to make sure I understand one of the most highly-regulated financial tools well enough to write a book called “Understanding Reverse,” but also to better assist loan officers and older homeowners with a better understanding of the product. Once again, no chuckles.

What we do is serious

Some older homeowners are faced with losing their homes. This can be tragic, and as a counselor I’ve cried with many of them. I have been able to prevent this by using reverse mortgages to pay off delinquent forward mortgages, tax liens, delinquent property taxes, and judgments that affect title to their homes. I recently closed a loan that paid all four of these items in time to avert a pending foreclosure. Because of negotiated payoffs, the homeowner now has an additional $100k in equity and no monthly payment. Without it, they would have lost their home. That’s serious.

To reverse mortgage professionals, the premise of a broker and a borrower walking into a bar with a compliance officer is funny enough without a punchline, and has probably never happened before. For those of you who want to know about the palm reader? She saw a love line, a long life line, and a large line of credit in the borrower’s future. However, she informed the loan officer, with outstretched palms, that because of federal regulations she was also required to look at the ARMs.

See… Not that funny 🙂

Dan Hultquist

Why did I get a 1098 with my Reverse Mortgage?

Building a personal collection of rare items can be quite entertaining. Some of the most commonly collected items are pocket knives, comic books, sports cards, and postage stamps. While I have a small, but growing collection of coins, I may have the most obscure collection of all – reverse mortgage questions.

I do collect them, and occasionally I receive questions that are not addressed in my book, Understanding Reverse, because I would not consider them to be “top questions” material. The following is a recent addition to my collection that is important to know during tax season:

Why would a borrower get an IRS Form 1098 on a Reverse Mortgage? Does this mean they owe taxes?

This does create some confusion for reverse mortgage borrowers every January, and it needs to be addressed. Most reverse mortgage borrowers, however, won’t get a 1098 simply because most of them don’t make payments. Some will. In fact, we described some advantages in a previous post – Wait, Make Payments?


While I am not a tax professional, I can state that IRS Form 1098 is a form that lists items that were paid by the borrower. This is for tax and accounting purposes, and does not increase their tax liability. The Form 1098 is used to report potential deductions, and therefore may REDUCE their tax liability. For our purposes though, it means that the borrower made prepayments during the previous year that were applied to either their accrued mortgage insurance or their accrued mortgage interest.

The IRS deduction for Mortgage INSURANCE (itemized on line 4) was renewed by congress for tax year 2014. However, this deduction is very limited (see IRS Publication 936 [2014]). Therefore, the borrower may not be able to write-off that amount. Mortgage INTEREST (itemized on line 1), however, is more likely to be deducted. Of course it will depend on other factors that you should discuss with your tax professional. Nevertheless, the loan servicer is required to notify the borrower with a 1098 when payments exceed $600.

So, in summary, a reverse mortgage borrower may get a 1098 in January after making prepayments in the previous year and should consult their tax preparer. The borrower may, or may not, have a deductible item on the form, but it does not indicate the need to pay more taxes.

I have been collecting reverse mortgage questions for several years, and I’m aware that many in my collection hold limited value. Nevertheless, the answers to the most common questions asked about reverse mortgages were the basis for writing the book, Understanding Reverse, which has been helpful to many industry professionals and older homeowners.

If you would like to add to my collection, and possibly have your question anonymously addressed in my blog, please don’t hesitate to click the “CONTACT US” tab in the upper right corner.

Dan Hultquist

What is Reverse Mortgage Financial Assessment?

The mortgagee must evaluate the mortgagor’s willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements.”

– Mortgagee Letter 2014-21

If you have not already heard, the federally insured reverse mortgage program is going through another major change effective March 2, 2015 called Financial Assessment. For the first time, reverse mortgage lenders will be required to assess each borrower’s credit history and monthly residual income. This is a dramatic change for an industry where the focus has been primarily on the value of the home.

Why Financial Assessment?

The first question many will ask is, “why do these things matter when originating a loan that doesn’t require monthly repayment obligations?” After all, the value of the home and the age of the borrower are the primary factors in qualifying. So, why are residual income and credit now included in the underwriting of these loans?

The answer is that these loans should not be viewed as an emergency, short-term access-to-cash, program. Home equity conversion should accomplish more than that. It should always leave the borrower with the ability to pay their property charges and monthly bills. Therefore, we need to document that ability with this assessment. The reverse mortgage MUST be a sustainable solution for the homeowner.

According to Mortgagee Letter 2014-21, “The mortgagee (that is us, the lender) must evaluate the mortgagor’s (that is the borrower’s) willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements.”

The critical borrower obligations and mortgage requirements are as follows:

  • Upkeep of the home in good condition
  • Payment of property taxes
  • Payment of homeowners insurance
  • Payment of other property charges (flood insurance, HOA dues, condo dues, etc.)

These are FHA requirements, and we need to document every borrower’s ability to meet these obligations. It is important to note, however, that Financial Assessment is NOT necessarily a “yes or no” qualification of the borrower. The results of Financial Assessment are generally used to determine whether a life expectancy set-aside is needed or not.Financial Assessment

What is a Life Expectancy Set-Aside (LESA)?

When the underwriter determines that one or more of the financial assessment tests have failed, a Life Expectancy Set-Aside (or LESA) will be required. These are funds that are removed from the borrower’s principal limit and set-aside for the purpose of paying property charges over a calculated time period. The two types of LESAs that may be required are described here:

FULLY-FUNDED LESA – The lender uses funds set-aside from the borrower’s principal limit to pay three critical property charges; property taxes, homeowners insurance, and flood insurance (if needed). The lender pays these charges directly when the bills are due, in the same way a traditional escrow account functions.

PARTIALLY-FUNDED LESA – The lender uses funds set-aside from the borrower’s principal limit to supplement the borrower’s income. This is done to fund a homeowner’s gap in residual income. The lender releases necessary funds to the borrower semi-annually. The borrower, however, will be responsible to pay their own property charges.

For more information on consumer protections and other changes designed to strengthen Home Equity Conversion Mortgages, make sure you purchase the book, Understanding Reverse, and subscribe to my blog in the right-hand margin.

Dan Hultquist

Do You Believe in Reverse Mortgages?

“Being able to recognize the alternate uses of home equity in retirement requires one to take a long-term financial-planning view. Remember, the program was not initially designed as a short-term, quick fix. It was designed for two purposes – a monthly stream of income or a line of credit for future use.”     

– Understanding Reverse

What an odd question to ask. I believe in miracles, but I don’t necessarily believe in karma. I believe in an NCAA football playoff system, but I don’t believe the NCAA acts in the best interest of student athletes. I believe Roger Federer is the greatest tennis player of all time, period. But asking if I believe in Reverse Mortgages is like asking an English teacher if he/she believes in grammar. They both exist, but they are not properly understood by most people, and therefore misused.

This question, however, has been posed to me many times recently.  I generally don’t mind, because it offers me the opportunity to respond. I wrote the book Understanding Reverse to help educate people and to change perceptions. But I find that the question behind the question is often, “Do you believe Reverse Mortgages are good financial tools?” And the questioner has already formed an opinion.

The best way to respond is to ask what they currently know about Reverse Mortgages. That way I can assess their knowledge. I also find that most people can be classified into three different perspectives: the “Misinformed”, the “Last Resorters”, or the “Strategists”. Let me describe each:

Level #1: The “Misinformed”

A friend recently posted on social media, “Only a fool would get a Reverse Mortgage. It’s a scam.” That is terribly offensive to Certified Reverse Mortgage Professionals (CRMPs) who re-commit themselves, in writing each year, to act in the best interest of older homeowners. These comments, however, also reflect a level-1 understanding of the product. Their perception, or misperception, is generally tainted by the following THREE COMMON MISCONCEPTIONS:

  • The bank gets the home now, or when I die
  • I may end up owing more than the value of my home
  • My estate will get stuck with a bill for loan balance deficiencies

Of course, we know that the homeowner holds title to the home for the life of the loan, and that the heirs generally have at least four options when the loan matures. In addition, the non-recourse feature states that the homeowner and their heirs will not owe more than the value of the home. They are not stuck with a bill. The FHA insures Reverse Mortgages and offers many generous consumer protections.

Level #2: The “Last Resorters”

A friend of mine was happy to report to me that their financial planner was open to Reverse Mortgages. The planner conceded that “there are times when a Reverse Mortgage may be an appropriate solution.” According to him, the ideal candidate is a homeowner who is house rich, cash poor, with no heirs, and is using it as a “last resort” to stay in their home. My response was “Congratulations. You have a financial planner who is willing to allow a desperate homeowner access to their own money”. That is a very short-sighted view of Home Equity Conversion, and unfortunately, that financial planner is missing the most critical financial planning aspects of the program.

Unfortunately “Last Resorters” have a limited understanding of the product and are influenced by the following THREE ERRONEOUS ASSUMPTIONS:

  • Reverse Mortgages are very expensive
  • Interest rates are very high
  • Reverse Mortgages inherently cause home equity to decrease

Of course we know that the product can be very INEXPENSIVE for homeowners who stay in their homes for longer periods. Interest rates have been extremely LOW on Reverse Mortgages for quite some time. Finally, since initial disbursement limits were implemented, the majority of amortization schedules that I view show the homeowner’s equity INCREASING for many years. This is because interest accrual is projected to be small compared to home value appreciation.AA015287

Level #3: The “Strategists”

Individuals with a level-3 understanding of Reverse Mortgages are rare, but are becoming more common with the help of financial planning researchers and their published papers in the Journal of Financial Planning.

“Strategists” believe that the strategic use of home equity in retirement should be considered by all older homeowners as a form of insurance and/or retirement planning. They believe it strongly enough that they obtain Reverse Mortgages for themselves, and recommend them for their friends and their family members as early as they can.

Those with this higher-level understanding of Reverse Mortgages are influenced by the following SIX RELATIVELY UNKNOWN TRUTHS:

  • The compounding line-of-credit growth is a powerful retirement planning tool
  • Rising interest rates offer future advantages for homeowners using the product wisely
  • Making payments toward Reverse Mortgage balances may have positive financial planning implications
  • Reverse Mortgages can be used to delay Social Security, thereby increasing your monthly retirement benefit
  • Reverse Mortgages can act as a hedge against property value declines
  • The “Standby Reverse Mortgage” can extend a retirees assets, making them less likely to run out of money

Yes. I do believe the proper use of Reverse Mortgages should be considered as a part of every older homeowner’s retirement plan. To better understand the strategic uses for reverse mortgages, please subscribe to my blog in the right hand margin.

Dan Hultquist

How Are Reverse Mortgage Principal Limits Calculated?

“Historically, the principal limit has been a measure of what HUD says a borrower with certain factors is able to borrow at closing. After the September 2013 changes to the program, however, that definition is not quite accurate. Homeowners may be restricted in the amounts they can borrow up-front. Fortunately, with the adjustable rate products, the remaining net principal limit will be accessible after that first year.”

Understanding Reverse

One of the most common questions I get from borrowers is “What is the most I can borrow?” While borrowing it all up-front may not be the optimal strategy, it is important to know the amount of funds homeowners have available to them. It is also significant to note that this number increases with time. Therefore, technically what they really want to know is, “What is my initial principal limit?

Initial principal limits vary from homeowner to homeowner and are based on AGE, RATES, and the HOME’S VALUE. Reverse Mortgage calculators will generate principal limits that are consistent from lender to lender. But let’s discuss how they are determined:

  1. Begin with the Relevant AGE

Older borrowers generally qualify for higher principal limits. While all borrowers must be 62 or older, non-borrowing spouses may be much younger. Therefore, HUD publishes tables that reference every age from 18 to 99. Keep in mind the relevant age will be the youngest borrower, co-borrower, or non-borrowing spouse. I often refer to this as the “Age of Youngest Participant.”

  1. Identify the Relevant RATE

For fixed-rate reverse mortgages, we will use the interest rate. With adjustable rate loans, however, FHA requires us to project what the rate for a particular reverse mortgage may be in the future. This number has been between 4% and 6% for quite some time, and is referred to as the “Expected Interest Rate.”

Using these two items (age and rate), we can look up the homeowner’s Principal Limit Factor (PLF) from HUD’s factor table.



In the chart below, you will see a small sample of selected ages and selected expected rates and the corresponding PLF% from the 2014 table.


  1. Multiply the Homeowner’s PLF by the Home’s Value

When the PLF is multiplied by the home value we get the initial principal limit in dollars. Bear in mind that higher home values will be capped at $625,500 (for calendar year 2015) for the purpose of this calculation.

Let’s look at an example.  Linda is 74 years old, and she is younger than her spouse. Therefore, she is the youngest participant. She has an expected rate of 5.00%. Using these two pieces of information, we can look up a PLF of 60.6%.

60.6% of Linda’s home value of $200,000 will give her an initial principal limit of $121,200. This principal limit will increase for Linda every month that she remains in the home, regardless of future home values. She could borrow it if needed, or let it continue to grow. Eventually, her available funds my even grow to exceed the value of her home.

For those homeowners that use the product for financial planning purposes, this increasing principal limit can offer a secure collection of funds to be accessed later in retirement if needed. The compounding is working in the homeowner’s favor, and is a good reason to consider getting a reverse mortgage early in retirement.

To learn more about reverse mortgage guidelines and the advantages they offer older homeowners who use them properly, please purchase a copy of my book, Understanding Reverse.

What are my Retirement Income Options?

“Whether households have sufficient savings from which to ensure adequate income throughout retirement is a concern of households and, therefore, policymakers. Although most households are eligible to receive Social Security benefits in retirement, over the past 30 years, the types of non-Social Security sources of retirement income have been changing.”        – John J. Topoleski, Analyst in Income Security, Congressional Research Service – July 23, 2013

Retirees are worried about it. Children of retirees are worried about it. Financial Planners are worried about it. Heck, CONGRESS is worried about it! Will we have income during our retirement to last through unexpected circumstances and increased longevity?

It might help to know what options are available. Most people are familiar these five traditional methods of providing for monthly expenses during retirement:

  • Social Security Income (and sometimes Supplemental Security Income)
  • Pension Income
  • Retirement Savings Plans
  • Medicare (and sometimes Medicaid)
  • Part-time Employment

Each these five methods, however, have issues that explain why baby boomers look for other options. Social Security is not sufficient to provide the income necessary to sustain an individual during their retirement years. Employers have moved away from defined benefit pension plans, and instead have opted for employer-sponsored tax-advantaged accounts. Traditional retirement savings are subject to volatile market conditions, and employment during the retirement years is often not practical, or even possible.

AA032297However, baby boomers have a disproportionate amount of their retirement savings in their homes. For most homeowners, in fact, the principal residence is the largest asset they possess. Therefore, draws from home equity during retirement have become more prevalent.

How does someone crack the home equity nest egg?

The equity that is created by home ownership is something of value that can be accessed for additional income during retirement. The home can indeed be used as a retirement nest egg, but it is difficult to crack for various reasons. Ken Scholen, whose research helped create the home equity conversion mortgage, wrote on this topic back in 1995:

“Some people have used their homes as retirement nest eggs. But to do so, they have to do things that most of us would rather not do – sell our homes and move elsewhere, or take out a loan against our homes and start making monthly payments.”

– Your New Retirement Nest Egg

His writing was an inspiration to me as I wrote my book, because his message is more applicable now than ever. Baby boomers do NOT want to leave their homes in order to access the equity they have built. Ken went on to say:

“For most of us, home equity is not a source of retirement income at all. We spend decades building up equity in our homes. But we never cash in on our most important investment. We never get to use the equity we’ve worked so hard for.”

We know that Reverse Mortgages were established to solve this problem. We can convert home equity into a line-of-credit or monthly cash payments. This can supplement other forms of retirement income. While it may be beneficial to wait and opt-in to Social Security later, the same is not true for Home Equity Conversion. It actually makes sense to obtain one early in retirement, make payments to reduce the loan balance, and watch the line-of-credit grow as another form of future retirement income.

– Dan Hultquist

To learn more about how reverse mortgages can be used in financial planning, subscribe to this website in the right-hand margin.

Dave Ramsey’s Misunderstanding of Reverse Mortgages is Hurting Seniors (Part II)

Last week, I wrote a piece that violated my personal blogging guidelines – it exceeded 700 words. Worse yet, I couldn’t wrap up the topic in one blog, and had to split it in two.

I fully recognize that Dave Ramsey has credibility on a national scale. But don’t take his word as gospel on the subject of reverse mortgages. For that matter, don’t take MY word on it without having done your own research. Fortunately, financial planners, retirement specialists, and academia have all done plenty of writing on the topic. The Journal of Financial Planning is loaded with data indicating that reverse mortgages offer significant financial planning advantages that homeowners should consider. In fact, reputable publications agree. The Wall Street Journal recently published an excellent article written by Professor Wade D. Pfau, which eloquently explains the non-recourse feature and line of credit growth.

“…recent research has demonstrated how financially responsible individuals can improve their retirement sustainability with a reverse mortgage.”

“These reverse mortgages are also non-recourse, which means that one never owes more than the value of their home. This can be useful in the event of declining housing prices, and for someone living sufficiently long, there is real possibility that the line-of-credit will actually grow to be more than the value of the home.”         

– Professor Wade D. Pfau ( – The Case for Reverse Mortgages


So, as a continuation of last week’s blog, let’s discuss and clarify some basic concepts Dave Ramsey still doesn’t understand.

Misunderstanding #4 – “Crazy Fees: Fees on a reverse mortgage are expensive and can cost you 10% or more of the loan amount.” – Quote from Ramsey website


Yes. There are fees just like any financial transaction, and reverse mortgage fees are not only federally regulated, they are also common to mortgage transactions. Dave’s “endorsed local providers” charge fees too, but whether they are expensive (or crazy) will depend on how the products are used and the alternatives. If Dave advocates selling the home instead, I can assure you the fees will be far greater. I’ve seen reverse mortgages in recent years where the lender pays all, or most, of the closing costs. But comparing the fees to the loan amount also shows his misunderstanding. A homeowner may have a few thousand in fees, yet not draw any home equity. In that case, the fees could be $5,000, and the loan amount would be $5,000. The fees would therefore be 100% of the loan amount. That doesn’t sound attractive until you recognize that the available and secure line-of-credit (LOC) may be $200,000 or more. That drops the fees to only 2.5% of the current outstanding benefit. This LOC also grows tax free, and can be converted later into tax-free retirement income.

Misunderstanding #5 – “You don’t make monthly payments, but if you sell the house or move out for more than a year, the loan is due and the income stops.” – Quote from Ramsey website

PARTLY TRUE, but misleading

Monthly principal and interest payments are surely not required. But Ramsey followers should instinctively ENCOURAGE homeowners to make payments, regardless of the financial tool. This will reduce their loan balance and increase their home equity. It will also boost their line of credit which, if needed, can be converted into retirement income later.

The last part of this quote is just silly – of course the loan is due when you sell the home. ANY lien against the home is paid off during closing when a homeowner sells their home.

Misunderstanding #6 – “The interest rates that they’re calculated at are horrendously bad.” – Quote from Ramsey website


Well, I guess it is possible that Dave may have inside sources that allow his followers access to 0% rates, but I promise it will not be a non-recourse loan requiring no monthly payments. The last time I checked, a 2.25% lender margin (2.411% starting rate after adding today’s 1-month LIBOR) is very attractive. On top of that, it is a non-recourse loan.

For homeowners that are using the reverse mortgage for financial planning purposes, however, there is a significant advantage in higher interest rates. 2.411% may be nice for someone carrying a large mortgage balance, but HIGHER interest rates can help other homeowners, as the available line of credit will grow that much faster.

The Truth

The truth is: Younger homeowners SHOULD view mortgages as debt. They should make every effort to pay off, or pay down, mortgage balances in order to build a real estate investment for the future. Nevertheless, the home equity created by this investment should be viewed as a nest egg that may be accessed during retirement. The federal government has allowed older homeowners to draw from this nest egg, tax free, and continue to stay in their home without a monthly payment. Doing so requires a lender, a lien against the home, and a federal agency to insure the loan.

For the masses of homeowners who have the majority of their wealth tied up in their homes, let’s make sure their options are clearly explained. No more misinformation. While there are reasons to avoid a reverse mortgage, Dave Ramsey has not identified them yet.

Subscribe to this blog to learn more, and for Part I of this blog, Click the link below:

Dave Ramsey’s Misunderstanding of Reverse Mortgages is Hurting Seniors (Part I)

Dave Ramsey’s Misunderstanding of Reverse Mortgages is Hurting Seniors (Part I)

Best-selling author, and nationally syndicated radio personality, Dave Ramsey, has helped millions of individuals find financial peace with his sound budgeting advice. While this is worthy of applause, the mainstream financial planning community regularly disagrees with his guidance. The Motley Fool even describes his retirement planning advice as “dangerous.”

It saddens me that while reverse mortgage professionals across America are passionately helping older homeowners with debt consolidation and prudent financial planning, Mr. Ramsey holds them back. One of the most misinformed “planners” in the country has one of the loudest voices. So, I feel compelled to call him out. What I find however, is that I am not alone. Many others have investigated, and written their concerns about this growing problem.

“He’s huge… which makes him being wrong about something important a real problem, because he can spread incorrect information like a virus, infecting millions of people, and causing significant harm as a result.” – Martin Andelman (Mandelman Matters) Why Can’t Dave Ramsey Get his Facts Straight on Reverse Mortgages?

“He writes books; He knows about money – He must be right, I should follow his advice AND teach others to follow his advice… This is a dangerous premise and one that is somewhat unpopular for me to write about.” – Harlan Accola (Wisconsin Christian News) The Fallacies of Christian Financial Advice

Initially, I thought the problem was simply a fundamental difference in the way we view home financing. Maybe his personal problems with debt that forced him into bankruptcy caused a heightened sense of hatred toward banks and lenders. But, it appears that he simply has not done his research. Some of what he says may have been true in the 60’s and 70’s before federal regulation of the industry. But claiming these things are true today, is no different than saying “Dave Ramsey has a debt problem, and is facing bankruptcy.” It is no longer true and irresponsible to say.Microphone

I have been through “Financial Peace University” and really enjoyed it, but Dave has had over 25 years (since reverse mortgages became federally-regulated) to get his facts right. So, let’s discuss and clarify some of the concepts the he doesn’t explain correctly.

Misunderstanding #1 – “because interest accrues over the life of the loan, your debt can ultimately exceed the value of your home.” – Quote from Ramsey website


One of the first items addressed in nearly every basic training on reverse mortgages is that FHA insures against this ever happening. The FHA GUARANTEES that homeowners and their heirs will NEVER owe more than the value of their home. This is called a “non-recourse” clause, and is not only a primary consumer advantage, it is something that every reverse mortgage applicant is required to be counseled about.

Misunderstanding #2 – “You are also required to take a loan for the maximum amount you qualify for.” – Quote from Ramsey website


Not only false, the Federal Government PROHIBITS borrowers from taking all the proceeds up front unless needed to pay off large mortgage balances or other mandatory obligations that must be satisfied at closing. Yes, fixed rate products only allow a one-time distribution, but homeowners have ALWAYS had options where full distribution was not required. Even with the fixed rate, homeowners had the option of paying down loan balances at any time with funds they didn’t need.

Misunderstanding #3 – “If your loan exceeds the value of your home, you or your heirs will have to make up the difference if the home isn’t sold when the loan is due.” – Quote from Ramsey website


Once again, he has not read the federal regulations and consumer protections that are fundamental to this program. The non-recourse feature prevents any recourse to the homeowner or their heirs. In addition, the home is rarely sold when the loan is due. The heirs are given ample time to sell it and receive their inheritance if the homeowner has passed away with home equity. If no equity exists, the heirs may obtain the home at a discount (95% of appraised value). Yet, even if the home doesn’t sell, there is no recourse. The heirs do NOT have to “make up the difference.”

The Truth

The truth is: There are really good reasons NOT to get a reverse mortgage. I will write on that topic shortly, but Dave Ramsey’s blanket statements condemning the product are hurting older homeowners.

The truth is: Seniors HAVE lost their homes after getting a reverse mortgage. Yes, it is possible for ANYONE that owns a home to lose it. If you stop paying your property taxes, you may risk losing your home. That is true whether you have a reverse mortgage, forward mortgage, or no mortgage at all. Instead of scaring seniors, the reverse mortgage should actually REDUCE the fear that this will happen. Periodic draws from their home equity should actually INCREASE their ability to pay their property charges.

The truth is: reverse mortgages can be very effective at debt reduction, which is a passion that I share with Mr. Ramsey. Imagine paying off tens or hundreds of thousands of debt with reverse mortgage proceeds that allow homeowners the ability to pay off the new loan balance much faster, at interest rates in the 2%-4% range.

Subscribe to this blog to make sure you don’t miss part II next week.

I WANT A Reverse Mortgage When I Turn 62!

“Top executives and related professionals in the mortgage industry are encouraging friends and family members to obtain Reverse Mortgages. In many cases this is happening even when a homeowner has no immediate need for one. Could there be significant non-traditional uses for Reverse Mortgages that create an advantage for more than just the desperate and needy?”

– Understanding Reverse

The quote above is how I chose to begin my book. This is because the general public still considers Home Equity Conversion to be an act of desperation, not one of financial prudence. When celebrity spokespeople and a small percentage of mortgage professionals are the only ones who understand the financial planning advantages of a reverse mortgage, then we find ourselves with a knowledge gap and an industry perception problem.

The National Reverse Mortgage Lenders Association (NRMLA) and researchers within the Certified Financial Planner community have been trying to change this perception. Yet, in meeting with financial planners, I still get the same puzzled response – why would you want to get one when you are not desperate or needy? I then hand them a copy of my book.AA014748

I decided to ask other NRMLA Certified Reverse Mortgage Professionals (CRMP) how they would structure their reverse mortgages.

Professional #1

I would definitely take a HECM for the purpose of LOC (line-of-credit) growth. I would pay the closing costs upfront and carry a minimal balance so as to make this an ‘investment’ in the LOC growth for future use.”

Professional #2

“My current residence is not where I want to spend the rest of my life. When I retire, I will sell it and use a ‘HECM for purchase’ to buy my new residence. This will provide a sizable contribution toward the sales price of a home where I will spend the rest of my life. Any cash left from the sale will be reinvested for additional retirement income.”

Professional #3

“I’d take a HECM for the LOC, but I expect to have a mortgage balance at 62, so the reverse mortgage would pay that off, but I would continue making payments into the HECM LOC to ensure that money is there when I need it.”

Professional #4

“I will be signing the paperwork the day after turning 62. I will have a loan balance, but I will make regular payments. This will reduce my balance and boost my LOC as a 2nd source of retirement savings. Starting early will maximize the LOC’s compounded growth.”

They plan on using the ARM product to maximize guaranteed future cash flow that a Reverse Mortgage LOC can provide. This strategy is also enhanced when interest rates go up – the LOC grows even faster.

The strategy of obtaining a HECM early in retirement and converting liquid home equity late in retirement is generally not advertised. The Reverse Mortgage is more than a solution for the desperate. It can give retirees confidence that they will be less likely to run out of money, and it can take pressure off retirement portfolios.

Stay tuned to learn more about how to extend retirement assets beyond what traditional retirement planning can offer.

Wait, Make Payments on a Reverse Mortgage?

“There are significant advantages in making payments toward HECM loan balances that are not well known. Many homeowners are too intrigued by the fact that HECMs don’t REQUIRE a payment. Unfortunately, they miss a great opportunity to maximize some advantages of a HECM.”

– Understanding Reverse

Why would homeowners voluntarily make payments? The reverse mortgage, or Home Equity Conversion Mortgage (HECM) doesn’t require monthly principal and interest payments through the life of the loan. In fact, isn’t that a common selling point of the product?

Part of the confusion is that many older homeowners think obtaining a reverse mortgage means giving up their equity (and the home) to the bank. Why make payments, when you don’t own the home? But that’s not the way the HECM product works. The homeowner continues to own the home through the life of the loan, and reducing the loan balance will increase their equity position.

So, the decision to make periodic payments depends on the motives of the homeowner and his or her ability to make payments. According to HUD Handbook 4235.1, a borrower may “choose to make a partial prepayment because his or her financial circumstances have improved and he or she wishes to preserve more of the equity in the property.” A homeowner may also use payments to increase future monthly payouts, or to “set up or to increase a line of credit.”

That last phrase, “increase a line of credit” explains the movement toward using HECMs for financial planning purposes. Yes, the line of credit (LOC) will actually grow with each payment and be secured for later use. The available LOC will also grow naturally at the current interest rate plus 1.25%. This will give the homeowner even more accessible funds in retirement, regardless of future home value.AA013019

Keep in mind, the Fixed Rate HECM does NOT offer a Line of Credit. Prepayments will reduce the loan balance and increase homeowner equity, but that is the extent of the impact. However, when homeowners make payments toward Adjustable Rate HECM loan balances,

  1. the homeowner’s loan balance DECREASES,
  2. the homeowner’s equity position INCREASES, and
  3. the homeowner’s Line of Credit (LOC) INCREASES.

When a servicer receives a payment, FHA requires certain items to be paid back first. Known as a “prepayment waterfall”, this is important for accounting and tax purposes.  However, the LOC doesn’t care whether the payment was applied to accrued mortgage insurance, interest, or principal. It just knows the loan balance went down.

Be aware that borrowers cannot pay more than their loan balance to gain a larger LOC. In fact, paying it off completely will close the HECM. This would be unfortunate for those wanting to use it later in retirement.

The ability to make payments to reduce loan balances and secure a larger LOC for the future is a prudent financial planning strategy and should be great news for every older homeowner.

The HECM Line of Credit: Another Reason to Love Reverse Mortgages

“Quite possibly the most amazing feature of the adjustable rate HECM product is the line of credit (LOC) and its ability to grow. It is only available on the adjustable rate products, and it is unique in the world of finance. It is also the primary reason Reverse Mortgages are useful in financial planning.”

– Understanding Reverse

The Home Equity Conversion Mortgage (HECM) is offered at FIXED rates, which is fine if you want a one-time distribution of funds. The ARM products, however, offer homeowners the flexibility of monthly payouts and an open line of credit. This means one can borrow from it at any time, pay it down, and borrow from it again without restriction. In fact, many will use the LOC to manage cash flow.

There are so many great advantages to having a HECM LOC that I feel I have to list a few here:

  • The LOC is LIQUID. If you need funds they are easily accessible. Just simply request them. For this reason, it is an effective emergency fund.
  • The LOC is SECURE. The LOC is not capped, reduced, frozen or eliminated as a result of market conditions or property value declines.
  • The LOC is NOT “BORROWED” until drawn. For this reason, the available LOC does not accrue interest and mortgage insurance.
  • The LOC GROWS.

LOC Growth

There are two things that cause HECM LOCs to grow – time and payments. I won’t cover the math behind it here, but the homeowner’s Principal Limit (borrowing capacity) grows naturally at the same compounding rate of the loan balance. This is what produces the increase. For this reason, increases in interest rates can be advantageous for some homeowners as their LOC grows even faster.

Homeowners can also increase their LOC by making payments to reduce their loan balances. The lesson to be learned is that if a homeowner has cash available, it may be prudent to pay down the Reverse Mortgage balance. This will boost their LOC.

Declining property values don’t impact the LOC growth. Consequently, the LOC may even grow to exceed the home’s value. This can also occur when a homeowner holds a LOC for longer periods, or when interest rates rise dramatically causing the LOC to grow faster.


Important to understand

Be aware that if you intend to keep the LOC for financial planning, make sure not to pay down your loan balance completely. This could close your reverse mortgage and close your LOC.

In addition, only the available LOC grows. Some borrowers use all of their funds and wonder why their LOC does not increase the next month. There is simply nothing left to increase

So when you begin to contemplate how you will use a Reverse Mortgage, consider the product type. If you want the predictability of a fixed rate loan, that is certainly understandable. If however, you want to maximize the financial planning advantages of a liquid, secure, and growing line of credit, choose the ARM product.

Order the newest version of my book today to learn more about how Reverse Mortgages can allow older Americans to have more financial freedom. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

The HECM for Purchase: Another Reason to Love Reverse Mortgages

“HECM for Purchase began with the passage of the Housing and Economic Recovery Act of 2008. Prior to this legislation, if a homeowner in retirement wanted to relocate, qualifying for the new home often proved difficult. They would have to be eligible to purchase a home though traditional means, establish their residency in the home, and then refinance with a HECM if desired.”

– Understanding Reverse

The ability to use a Reverse Mortgage to purchase a home is no longer “new”, yet the public is still in the dark. Clearly, the Home Equity Conversion Mortgage (HECM) is more versatile than anyone realizes. In fact, when I speak to seniors, financial planners, and even Realtors, the concept of purchasing a home with one is completely foreign. While I can’t cover all of the details in a blog, let’s cover some basics.

The Need

Older homeowners often find themselves wanting to, or needing to, relocate to be closer to family, downsize to a more manageable home, or even upsize to a retirement dream home on the beach, golf course, or active adult community.

A call I received this week is a common one; “My grandmother wants to move to the south to be closer to the kids and grandkids.” Having lived half my life in the north, I understand that moving to the south is attractive enough on its own. Yet, when physical limitations become a reality, or when individuals desire a closer connection to family, sometimes a move is needed.


The Contribution

In a HECM for Purchase, the lender will still be able to provide the same principal limit to the borrower as is customarily available with a Reverse Mortgage. Instead of giving the funds to the borrower, however, the funds are generally applied to the sales price of the new home. Depending on the age of the youngest participant, and the effective interest rate, a lender may be able to contribute principal limits of 30% to 75% of the home value toward the purchase of that home.

When selling a home and relocating, homeowners may find that this program allows them to have cash reserves upon relocating. Many will even use the remaining funds to supplement their retirement savings.

The Details

HECMs are specifically designed to be offered only for a borrower’s “Principal Residence.” This means that HUD will require the borrower to occupy the home within 60 days. Also, be aware that many mistakes can be made when the Realtor writes the sales contract. So make sure the Realtor understands HUD’s guidelines related to new construction and seller-paid closing costs for Reverse Mortgages.

Order my book today to learn more about how the Reverse Mortgage for Purchase allows older Americans to have more freedom with their housing. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

The Non-Recourse Feature: Another Reason to Love Reverse Mortgages

The proper definition of the non-recourse feature is “FHA guarantees that the borrower will not owe more than the home is worth at the time it is sold.” This should be comforting to every homeowner and their heirs. They can be assured that if a homeowner lives a very long time, or if property values drop, FHA will pay a claim to the lender so that nobody is harmed by the loan being “upside down” or “under water”.                     

– Understanding Reverse

This is a primary consumer protection that makes HECMs so attractive. What’s not to love about this provision? It is a tremendous advantage for older homeowners that removes much of the risk associated with homeownership. Because many are skeptical about this claim, I often get asked to prove the non-recourse feature really exists. So the book, Understanding Reverse, documents the federal regulations and relevant handbooks that give us guidance.

Can a Reverse Mortgage really guarantee this?

Yes. The homeowner is not responsible for the portion of a loan balance that accrues beyond the home’s value. Another common explanation is:


Unfortunately, many understand this phrase to mean that the bank takes the home. No. The homeowner retains title to the home through the life of the loan and can sell it at any time with no prepayment penalty. The non-recourse feature is simply there to protect the homeowner and the lender from “crossover” loss, that point where the sale of the home is not sufficient to pay off the loan balance. At the time the homeowner wishes to sell, they cannot be held responsible for the portion of the loan that exceeds the home’s value.

AA014705So, who pays for this?

Before you say this is too good to be true, this is why FHA collects mortgage insurance premiums. FHA’s Mutual Mortgage Insurance Fund (MMIF) is a collection of funds created specifically for this purpose. But who pays for it? The large pool of HECM borrowers pay for it indirectly through the insurance premiums that accrue on their balances.

The non-recourse feature may also allow the heirs to obtain the home for less than market value. After the last borrower has died, the non-recourse feature allows the heirs to obtain the property for either 95% of the home’s value or the loan balance, whichever is LOWER. Again, there is no recourse to the estate for this.

Order my book today to learn more about how FHA protects consumers and ensures that the heirs are not stuck with a bill. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

Finally! A book to simplify the New Reverse Mortgage

On a recent flight, the passenger next to me asked, “What do you do?” I have begun to enjoy seeing the reactions when I reply, “I educate others on the proper use of reverse mortgages.” Predictably, she replied, “I sure hope I never need one of those.” THAT reaction is precisely why I wrote UNDERSTANDING REVERSE.

I have spent several years studying, selling, and teaching the Home Equity Conversion Mortgage (HECM), the popular federally-insured reverse mortgage product. The conclusion I, and other industry professionals, have come to is this:

When I turn 62, I WANT a HECM.

The federal government has established guidelines that, while complex, make this a financial tool every homeowner age 62 and older should consider, whether they need it or not. As evidence, consider that executives in my industry are getting HECMs for themselves and their family members. Unfortunately, our understanding of the product is different than that of the average homeowner. It appears we need a better understanding of reverse mortgages.

In response, I have written a book, titled Understanding Reverse that addresses the most common questions I get. The goal was not only to simplify the new reverse mortgage, but also to create a reference guide for answering those questions in the most compliant way. The book begins by answering the basics – what is a reverse mortgage? Every chapter that follows builds on previous chapters until the reader has a more comprehensive understanding from which to make financial decisions.

This web page, on the other hand, will include ongoing blog discussions about reverse mortgage concepts. This should also contribute to a better understanding of the product.

In addition to being an author and educator, I am the only Certified Reverse Mortgage Professional (CRMP) residing in Georgia. If you know someone curious about reverse mortgages, share this link. From here they can purchase the book and stay current with ongoing discussions through this blog.

For the other mortgage professionals that follow my writing, I would love to see your comments about how you plan to use a reverse mortgage during retirement.

As I post more blogs on this site, you will find that I am passionate about educating the public and correcting misconceptions. In fact, the skeptical passenger has since reached out to me for more information and is exploring her options. Whether she decides this is an option for her or not, that is one additional homeowner that now has a better understanding.

Dan Hultquist