Today’s reverse mortgage programs contain numerous safety features to reassure seniors that they retain their rights as the homeowner, and they cannot put themselves, their home, or their family at any financial risk. These protections are mandated by law for the FHA HECM and by Best Practice for Jumbo programs (Also referred to as ‘Conventional Reverse Mortgage’).

 Below is a listing of the most important consumer safeguards:

 1) Independent Counseling. Before a reverse mortgage application can be processed, the prospective borrower must first meet with an independent counselor. HUD oversees a network of counselors whose job is to review the transaction, answer questions, and suggest alternative options.

 2) Interest Rates and Available Options:

FHA HECM: You, the borrower, may choose from three ‘Reverse Mortgage’ products. You may select a fixed interest rate, a monthly adjustable ARM , or an annual adjustable ARM.  Adjustable rates are calculated based upon one of two indexes - the 1-year U.S. Treasury Constant Maturity Rate published weekly by the Federal Reserve, or the London Interbank Offered Rate (LIBOR). Your interest rate will be the ‘index’ plus a margin charged by the lender. Both the monthly and annually adjusted rates have lifetime caps. 

Jumbo Reverse Mortgages. These products are available for homeowners that require a larger principal balance than allowed under a FHA insured loan. Most Jumbo programs are based on the LIBOR index, plus a margin charged by the lender.

 3) Limitation on Fees. Origination fees are capped and may be financed as part of the reverse mortgage. This means you incur very little out-of-pocket expense to get a reverse mortgage.

 4) Advance Disclosure. Under the FHA HECM program, the Total Annual Loan Cost, or “TALC” disclosure, required by the Federal Reserve Board, is provided to the prospective reverse mortgage borrower and displays the total transaction costs over the projected life of the loan. This document is designed to make you fully aware of the costs incurred in obtaining the reverse mortgage.

 5) No Maturity Date. A reverse mortgage cannot become due during the homeowner’s lifetime. It is a permanent tool. There are no required payments and a lifetime right to occupy your home. These provisions provide a great protection against unforeseen circumstances thus rendering a reverse mortgages vastly safer than other loan alternatives such as a ‘Home Equity Line-Of-Credit’.

 6) No Prepayment Penalty on FHA HECM.

Your loan will not be due and payable until you permanently move out of your home, and you will not be accessed any additional fees such as a prepayment penalty.

Jumbo reverse mortgages. Some programs will charge a prepayment penalty should you pay off the loan within the first year.

 7) No Penalty for Canceling the Loan. After the loan closes, you have up to three days to cancel the transaction, the so-called “right of rescission,” for any reason whatsoever.

 8) Asset Protection. The reverse mortgageis a “non-recourse” loan. This means that the amount due can never exceed what the value of your home.  Title to the home always remains with the borrower. When the loan becomes due, the lender is repaid the sum of funds advanced plus the accrued interest, but never more than the value of the house. Should the value of the home exceed the loan balance, the equity remains with either you or your heirs.

 9) No Shared Appreciation. No reverse mortgage product in the marketplace has “equity-sharing” or “shared appreciation” features. In some earlier reverse mortgage products, the senior could obtain more money in exchange for giving up a percentage of the future value of the home. Such products are no longer offered.