Millions of retired Americans find themselves without enough money during retirement. If that sounds like you but you have equity in your home, you may be a good candidate for a reverse mortgage in 2022.

A reverse mortgage offers seniors the best of both worlds – you can stay in your home yet use the equity in it to enjoy retirement.

If you have equity in your home and you’re over the age of 55, keep reading to see how a reverse mortgage in California can help you.


What is a Reverse Mortgage?

A reverse mortgage, as the name suggests is a reverse way to receive cash from your home. You don’t have to leave your home to use the equity AND you aren’t required to make payments.

It sounds too good to be true, but it’s a program that helps seniors use the equity they’ve worked so hard to build up in their home so they can enjoy it during their golden years while remaining in the home.

To use the program, you must meet the eligibility requirements and prove you can afford the home’s upkeep including the real estate taxes and homeowner’s insurance. It can be a great way to access your home’s equity but still stay in the home you love.


How Does a Reverse Mortgage Work?

When you take out a reverse mortgage, you don’t get the full value of your home. You’ll receive a percentage of your home’s value based on your age or the age of the youngest borrower if there are multiple borrowers.

You’re more likely to receive more money the older you are, the lower interest rates are or the more your property is worth. It also helps if you don’t have a current mortgage balance or if it is a low balance. The amount you receive is based on the home’s value and your life expectancy. The older you are, the less risk the lender takes of having an outstanding loan for a long period, so you’ll receive more money.

Interest accrues on the loan throughout the time you have the funds outstanding, however, you do not have to make payments. The loan doesn’t become due and payable until you move out of the house, you sell the home, or you pass away.

Anyone is welcome to make payments during this time, though but you aren’t penalized if you don’t make payments.


Who is Eligible for a Reverse Mortgage?

Unlike a traditional mortgage, the eligibility and qualification requirements for a reverse mortgage in California are much more relaxed.

Let’s start with the eligibility requirements since they are the strictest.

All Borrowers Must be 55+Years Old

To qualify, all borrowers must be at least 55+-years old. We must use the age of the youngest borrower to determine how much you can receive. The younger you are, the less you’ll receive since you have a longer life expectancy than an older homeowner.

The Home must be your Primary Residence

You must prove you live in the home full-time to qualify. It must be your primary residence where you live most of the year. If you become hospitalized or must leave the home to live in a nursing home for more than 12 months, the loan can become due and payable.

If you die, the loan also becomes due and payable, but your heirs can pay it off with your estate.

You Must Own the Home

To qualify for a reverse mortgage in California, you must own the home free and clear. If you still have a mortgage on it, the balance should be small enough that you can pay it off with some of the proceeds, but still, have enough funds available to receive as income.

You Must Take HUD-Approved Reverse Mortgage Counseling

You must take a counseling course approved by HUD that helps you understand the reverse mortgage, how it works, and the consequences when you no longer live in the home. There are many third parties that provide the counseling and we can help you get set up with it.

You Must Prove you can Afford to Keep up the Home

You must be able to afford the home’s upkeep which means a few things:

  • You can afford the real estate taxes
  • The real estate taxes must be paid on time, and you must be able to prove you can afford them.
  • You can afford the homeowner’s insurance premiums
  • You are also required to keep homeowner’s insurance on the property, just like with a traditional mortgage. This protects everyone involved should total disaster strike your home, you’d have insurance coverage to rebuild it.
  • You can afford to maintain the home
  • The average home costs 1% of its value to keep up every year. You must prove you can afford the costs to maintain the home.

Ways to Receive your Funds

The home equity conversion mortgage offers several options to receive your funds. Think about how you’ll use the funds to determine which option is right for you.

Lump Sum

If you receive all your funds at one time, you can get a fixed interest rate, which means you don’t have to worry about changing rates. Interest accrues at the same rate throughout the term of the loan.

Equal Monthly Payments

This plan lasts for the lifetime of the borrowers. Even if one borrower dies, as long as the other borrower remains in the home, he/she will receive equal monthly payments which are based on the appraised value and your age.

Term Payments

You choose the term that you’ll receive equal monthly payments. For example, if you choose 10 years, your payment is based on the amount you were approved for spread out equally over 10 years.

Line of Credit

You get a line of credit (like a home equity line of credit) to use as you want. You only accrue interest on the amount you withdraw from the line, though. If you never touched the line, you never have to pay interest on it.

Equal Monthly Payments Plus a Line of Credit

You receive equal monthly payments and the remainder of what you’re offered sits in a line of credit. You can use or not use the line of credit. Any amount you don’t use doesn’t accrue interest but it’s there if you need it.

Term Payments plus a Line of Credit

You receive equal monthly payments for a set term, such as 10 years. Any amount you don’t use goes into a line of credit that you can access as needed. Any amount you don’t use doesn’t accrue interest.


How do you Pay Back a Reverse Mortgage?

You are not required to pay back a reverse mortgage while you live in the house, but you can make payments if you want. Any money you pay toward the loan while you’re still in the home will reduce the amount owed when you no longer live in the home.

When you or your heirs sell the home, though, the money from the sale goes toward the loan balance first, just like it would if you had a traditional mortgage. Think of it as using your home’s proceeds before selling the home.

If your heirs want to keep the home after your passing, they must refinance the home into their own name, using a traditional mortgage. They’ll pay off the reverse mortgage and have a regular mortgage.


Extra Payment Mortgage Refinance Calculator

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Pros and Cons of a Reverse Mortgage

Like any loan program, there are pros and cons you should consider before taking out a reverse mortgage in California.



No Monthly Payments

You don’t have to worry about making a monthly mortgage payment with a reverse mortgage. You don’t have to make any payments if you don’t want, but if you want to bring the balance down, you can make payments.

You Can use the Funds How you Want

You can use the funds for any reason. We don’t tell you how to use the funds. Whether you use the funds to pay off debt, take a vacation, or for living expenses, the choice is yours!

Surviving Spouses can Remain in the Home

If one spouse dies, the surviving spouse can remain in the home even if he/she is a non-borrowing spouse. As long as the surviving spouse lives in the home, the loan is not due and repayable.

You can Choose How you Receive the Funds

You can choose from the various methods of receiving funds based on the reason you want them. For example, if it’s a one-time use, you may want the fixed interest rate provided with a lump sum payment. If you want the funds for an emergency fund or regular monthly income to supplement your retirement, you may choose from the other options.

It’s a Non-Recourse Loan

A reverse mortgage is non-recourse which means if the home’s value drops, you only have to pay the amount the home is worth and not more. This prevents seniors from going ‘upside down’ on their loans.



You Must Prove you can Afford the Home

Even though there aren’t any mortgage payments, you must prove you can afford the real estate taxes, home insurance, and the cost to keep up the home. You must also make sure you keep up with these expenses throughout the time you have the reverse mortgage.

The Younger you are the Less you Receive

The amount you receive is based on your age. Even though you are eligible as soon as you are 62-years old, if you borrow when you’re 62 versus 70, for example, you’ll receive less funds.

You Must Live in the Home Full-Time

A reverse mortgage is only possible if you live in the home full-time. It’s not available on vacation properties or second homes.


Can you Lose your Home with a Reverse Mortgage?

Like any mortgage, there is the risk of losing your home, but it’s less risky with a reverse mortgage. As long as you follow the requirements, you aren’t at risk. Here are the top reasons seniors lose their home with a reverse mortgage.

You Don’t Live in the Property

If you vacate the home for a long period (usually 12 months), your loan could become due and payable. This means you will likely need to sell the home to pay off the loan and the interest that accrued.

You Put the Home up for Sale

If you put the home up for sale and don’t live there, but the home doesn’t sell for over 12 months, the loan could become due and payable. If you put the home up for sale, try to do so when a spouse still lives there to avoid this from occurring.

You Don’t Keep up with the Home

As a part of the agreement of the reverse mortgage, you must keep up with the real estate taxes, home insurance, and home maintenance. If you don’t, you violate the terms of the agreement and risk losing your home.


Final Thoughts

A reverse mortgage is a great way to access your home’s equity when you’re retired. It works best when you don’t have an outstanding mortgage and you can afford to keep up with the home’s responsibilities.

You can use the funds however you want, and the interest rates are attractive to help make it affordable to access your home’s equity.

If you’d like to tap into your home’s equity during your senior years, contact us today! We’ll show you all the options available to you and help you choose the most financially responsible option to make the most out of your home’s equity.