With a reverse mortgage, homeowners aged 62 or older can tap a valuable asset for cash without making monthly payments.
Instead, payment is due when you sell the house, stop living in the house full-time, die or fail to make property tax and homeowners insurance payments. While there are no credit scores or income requirements, lenders have another big must-have: home equity.
Your home equity is the market value of your home minus any outstanding debt on your property — including primary mortgages or second mortgages, like home equity loans or home equity lines of credit (HELOCs). In short, it’s the portion of your home you own outright.
Depending on the lender, homeowners are typically required to have 50% or 60% in equity to take out a reverse mortgage. Government-backed home equity conversion mortgages (HECMs) — the most popular type of reverse mortgage on the market — require 50% equity. Lenders may also consider your age and whether you can make on-time insurance and tax payments, based on your financial accounts.
If you’re thinking about a reverse mortgage, but you’re not at this equity threshold yet, you can take steps to build equity quickly by paying down your existing mortgage. Once you get to that point, there are a lot of other factors to consider — including the drawbacks and benefits of a reverse mortgage and which lender is best for you. CNBC Select outlines that below.
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You can borrow against the equity accrued in your home with a reverse mortgage
Offers in this section are from affiliate partners and selected based on a combination of engagement, product relevance, compensation, and consistent availability.
Flex Payment HECM, Flex Payment jumbo reverse, reverse for purchase, refinancing
Up to $4 million for Flex Payment jumbo mortgages
Pros and cons of a reverse mortgage
Before you go all-in on a reverse mortgage or, alternatively, assume it’s not for you, here’s what you should consider.
There are significant risks, including foreclosure, if you fail to make timely insurance and tax payments. But there are also clear benefits — like the fact that you won’t need to make monthly mortgage payments.
Pros
- You don’t need to meet a certain credit score or income requirement
- You won’t need to make monthly payments on the debt unless you move, die or stop using it as your primary residence
- The money you receive won’t be subject to income tax
Cons
- More equity is required than with other types of home equity financing
- You risk losing your home to foreclosure if you don’t keep up to date on your property taxes or home insurance.
- Your heirs will have to deal with the payments if you die.
- Can change Medicaid or Supplemental Security Income eligibility
- Some lenders charge a service fee
All reverse mortgage borrowers are required to have a session with a Department of Housing and Urban Development-backed counselor to discuss the risks and benefits before they get a loan.
Best reverse mortgage lenders
If you’ve decided this type of financing is for you, here are some of the lenders CNBC Select has picked as its best reverse mortgages.
Longbridge Financial
Equity required: 50%
Longbridge is available in all 50 states and offers HECMs, HECMs for purchase and a proprietary jumbo reverse mortgage for those 55 or older.
At CNBC, we like that it has low rates and doesn’t charge a monthly service fee like many other lenders. It also offers a $500 discount on closing costs to service members or veterans
However, there is no online application option.
Longbridge Financial Reverse Mortgage
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Annual Percentage Rate (APR)
Apply for personalized rates
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Types of reverse mortgages
HECM reverse, HECM for purchase, Platinum Mortgage (proprietary loan with larger limits and a low age requirement of over 55)
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Minimum equity
No specific minimum equity listed, but generally 50%
Pros
- Proprietary loan allows those as young as 55 to access a reverse mortgage, lower than the 62 that HECM reverse mortgages require.
- Accredited by the BBB with an A+ rating
- Available in all 50 states
- Provides a “scenario calculator,” on website that can help estimate the cost of a reverse mortgage
Cons
- Can’t complete application online
Mutual of Omaha
Equity required: 50%
Mutual of Omaha lends in all states except New York and West Virginia. It offers HECMs and a proprietary jumbo reverse mortgage for those 55 or older. It doesn’t charge a monthly service on HECMs.
We like that Mutual of Omaha receives high customer satisfaction ratings from the Better Business Bureau. But its website does not provide information on its rates and fees, which may make it hard for customers to compare prices at a glance.
Mutual of Omaha Reverse Mortgage
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Loan types
HECM, HECM for purchase jumbo, SecureEquity+, refinancing
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Minimum equity
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Maximum loan
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Age requirement
62 for HECM, 55 for SecureEquity+
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Availability
Mutual of Omaha offers reverse mortgages nationwide except for New York and West Virginia.
Pros
- Available in all states except New York and West Virginia
- High customer satisfaction ratings
- Provides an assortment of tools on its website
Cons
- Not transparent about rates and fees
Finance of America
Equity required: 50%
Finance of America offers a diverse selection of reverse mortgages, including HECM and a proprietary jumbo mortgage called HomeSafe Standard available to those 55 and older. It also offers HomeSafe Second, a second mortgage with a reverse mortgage repayment structure.
It doesn’t require mortgage insurance and does not charge origination fees.
It does have an online application process, but it does not post its rates and fees online, which could make it hard to compare.
Finance of America
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Loan types
HECM, HomeSafe Standard, HomeSafe Second
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Minimum equity
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Maximum loan
Up to $4 million (HomeSafe), $50,000 and $1 million (HomeSafe Second),
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Age limit
62 for HECM, 55 for HomeSafe Second, 60 for EquityAvail, 55 for HomeSafe (60 in Massachusetts, New York and Washington, 62 in North Carolina and Texas),
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Availability
Finance of America is a division of Finance of America Reverse which is licensed nationwide. In CA, NM, and OK, it does business as Finance of America Reverse. In NY, it does business as FAReverse, LLC
Pros
- Jumbo reverse mortgages are available up to $4 million
- Doesn’t require mortgage insurance premiums or origination fees on HomeSafe
Cons
- No online application
- Not transparent about rates or fees
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At CNBC Select, our mission is to deliver high-quality service journalism and comprehensive consumer advice to our readers, enabling them to make informed financial decisions. Every mortgage article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content independently of our commercial team and any outside third parties and pride ourselves on maintaining high journalistic standards.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
