A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the

borrower to access the unencumbered value of the property. The loans are typically promoted to
older homeowners and typically do not require monthly mortgage payments. Borrowers are still
responsible for property taxes and homeowner's insurance. Reverse mortgages allow elders to
access the home equity they have built up in their homes now, and defer payment of the loan until
they die, sell, or move out of the home. Because there are no required mortgage payments on a
reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can
eventually grow to exceed the value of the home, particularly in times of declining home values or if
the borrower continues to live in the home for many years. However, the borrower (or the borrower's
estate) is generally not required to repay any additional loan balance in excess of the value of the
home.[1]
In the United States, the FHA-insured HECM (home equity conversion mortgage) aka reverse
mortgage, is a non-recourse loan. In simple terms, the borrowers are not responsible to repay any
loan balance that exceeds the net-sales proceeds of their home. For example, if the last borrower
left the home and the loan balance on their FHA-insured reverse mortgage was $125,000, and the
home sold for $100,000, neither the borrower nor their heirs would be responsible for the $25,000 on
the reverse mortgage loan that exceeded the value of their home. The extra $25,000 would be paid
from the FHA insurance that was purchased when the HECM loan was originated. A reverse
mortgage cannot go upside down. The cost of the FHA mortgage insurance is a one-time fee of 2%
of the appraised value of the home, and then an annual fee of 0.5% of the outstanding loan balance.
[2]

Specific rules for reverse mortgage transactions vary depending on the laws of the jurisdiction. For
example, in Canada, the loan balance cannot exceed the fair market value of the home by law.[citation
needed]

One may compare a reverse mortgage with a conventional mortgage, whereby the homeowner
makes a monthly payment to the lender and after each payment the homeowner's equity increases.
[citation needed]

Regulators and academics have given mixed commentary on the reverse mortgage market. Some
economists argue that reverse mortgages may benefit the elderly by smoothing out their income and
consumption patterns over time.[3][4] However, regulatory authorities, such as the Consumer Financial
Protection Bureau, argue that reverse mortgages are "complex products and difficult for consumers
to understand", especially in light of "misleading advertising", low-quality counseling, and "risk
of fraud and other scams".[1] Moreover, the Bureau claims that many consumers do not use reverse
mortgages for the positive, consumption-smoothing purposes advanced by economists.[1] In Canada,
the borrower must seek independent legal advice before being approved for a reverse mortgage. In
2014, a "relatively high number" of the U.S. reverse mortgage borrowers – about 12% – defaulted on
"their property taxes or homeowners insurance".[5] In the United States, reverse mortgage borrowers
can face foreclosure if they do not maintain their homes or keep up to date on homeowner's
insurance and property taxes.[6]

Contents

 1By country
o 1.1Australia
 1.1.1Eligibility
 1.1.2Loan size and cost
 1.1.3Proceeds from a reverse mortgage
 1.1.4Taxes and insurance
 1.1.5When the loan comes due
 o 1.2Canada
 1.2.1Eligibility
 1.2.2Loan size and cost
 1.2.3Proceeds from a reverse mortgage
 1.2.4Taxes and insurance
 1.2.5When the loan comes due
o 1.3United States
 1.3.1Eligibility
 1.3.1.1Financial assessment
 1.3.2Interest rates
 1.3.2.1Initial interest rate (IIR)
 1.3.2.2Expected interest rate (EIR)
 1.3.3Amount of proceeds available
 1.3.4Options for distribution of proceeds
 1.3.5HECM for purchase
 1.3.6Closing costs
 1.3.7Ongoing costs
 1.3.8Taxes and insurance
 1.3.8.1Life expectancy set aside (LESA)
 1.3.9Are HECM proceeds taxable?
 1.3.10When the loan comes due
 1.3.11Volume of loans
o 1.4Hong Kong
o 1.5Taiwan
 2Criticism
 3See also
 4References
 5External links

By country[edit]
Australia[edit]
Eligibility[edit]
Reverse mortgages are available in Australia. Under the Responsible Lending Laws the National
Consumer Credit Protection Act was amended in 2012 to incorporate a high level of regulation for
reverse mortgage. Reverse mortgages are also regulated by the Australian Securities and
Investments Commission (ASIC) requiring high compliance and disclosure from lenders and
advisers to all borrowers.[7]
Borrowers should seek credit advice from an accredited reverse mortgage specialist before applying
for a reverse mortgage. Anyone who wants to engage in credit activities (including lenders, lessors
and brokers) must be licensed with ASIC or be a representative of someone who is licensed (that is,
they must either have their own licence or come under the umbrella of another licensee as an
authorised credit representative or employee) (ASIC)[8]
Eligibility requirements vary by lender. To qualify for a reverse mortgage in Australia,

 the borrower must be over a certain age, usually 60[9] or 65[10] years of age; if the mortgage
has more than one borrower, the youngest borrower must meet the age requirement[9]
 the borrower must own the property, or the existing mortgage balance must be low enough
that it will be extinguished by the reverse mortgage proceeds, thus leaving the reverse mortgage
as the only debt that remains secured against the property.[9]
Loan size and cost[edit]
Reverse mortgages in Australia can be as high as 50%[9] of the property's value. The exact amount
of money available (loan size) is determined by several factors:

 the borrower's age, with a higher amount available at a higher age[9]