Can I Get a Reverse Mortgage if I Still Owe Money on My Home?
Having a mortgage balance does not automatically stop you from getting a reverse mortgage, but you may be wondering how that balance gets handled.
You may qualify for a reverse mortgage if you still owe money on your home, as long as the reverse mortgage proceeds are enough to pay off the existing mortgage and cover the required closing costs.
In this guide, I will explain how the payoff works, how available proceeds are calculated, and what happens if you do not have enough equity.
Key Takeaways
- Existing Mortgage: Your current mortgage generally must be paid in full when the reverse mortgage closes.
- Available Proceeds: Your age, home value, current rates, program limits, and mortgage payoff all affect how much may be available.
- Monthly Payments: A reverse mortgage generally does not require monthly principal and interest payments while program requirements are met.
- Ongoing Responsibilities: You must continue paying property taxes, homeowners insurance, and other property-related charges.
I am Mike Burton (NMLS# 3373), Mortgage Broker/Owner at Slade Mortgage Group. I have worked in the mortgage business for 40 years, and I help homeowners throughout Cape Cod, the Islands, Plymouth County, the South Shore, and the Boston Area review their options.
Quick Answers
- Do I need to own my home free and clear? No. Many reverse mortgage borrowers still have a mortgage when they apply.
- Does my old mortgage stay in place? Generally, no. It is paid off with the new reverse mortgage at closing.
- How much equity do I need? There is no single equity amount that works for everyone. The available proceeds must be enough to handle the mortgage payoff and required costs.
- Will I have a monthly mortgage payment? You generally will not have a required monthly principal and interest payment, but you must meet the loan and property obligations.
How a Reverse Mortgage Pays Off Your Current Mortgage
Ok, here is how the program works. The reverse mortgage becomes the new loan on your property. Part of the proceeds is used to pay off your current mortgage, along with other liens that must be cleared at closing.
Your current lender will provide a payoff statement. This tells the closing attorney how much is needed to satisfy the loan through the expected closing date. The amount may be a little higher than the principal balance shown on your monthly statement because it can include accrued interest and other legitimate payoff charges.
Once the closing is complete, the old mortgage is paid. The reverse mortgage then remains against the home until a repayment event occurs.
A reverse mortgage is generally repaid when the last eligible borrower permanently leaves the home, sells the property, or passes away. It may also become due if the borrower does not meet the loan obligations, such as paying property taxes and homeowners insurance.
How Much Money May Be Available?
The amount available through a reverse mortgage is not based only on the value of your home. Several items are reviewed together.
- The age of the youngest eligible borrower or eligible non-borrowing spouse
- The appraised value of the property
- Current market rates
- The program’s current lending limit
- The balance of your existing mortgage and other liens
- Closing costs and required set-asides, if any
- The payment option you select
Generally, an older eligible borrower may have access to a larger portion of the home’s value than a younger eligible borrower. Higher interest rates may reduce the amount available. Program calculations and limits can change, so the figures need to be reviewed using current guidelines.
This is 1 example, we have many options to choose from. The important part is not just the home value. I also need to look at what you owe and what the reverse mortgage may provide after costs.
What Happens if the Reverse Mortgage Is Not Enough to Pay Off My Loan?
If the available reverse mortgage proceeds are less than your current payoff, the loan normally cannot close unless the difference is resolved. In some cases, you may be able to bring funds to closing. The source of those funds may need to be documented.
Here is a simple example. Suppose the reverse mortgage calculation provides an amount that is close to your current mortgage balance, but not quite enough after closing costs. You may have a shortfall. I would go over that amount with you before moving forward.
You do not want to find this out at the last minute. An early review of your estimated home value and current payoff can give us a better idea. The appraisal and final payoff statement will still control the closing figures.
HECM and Proprietary Reverse Mortgages
There is more than one type of reverse mortgage. The right choice depends on the property, home value, existing debt, borrower eligibility, and current program guidelines.
| Program | How It Works | Points to Review |
|---|---|---|
| HECM | A federally insured reverse mortgage commonly available to eligible homeowners age 62 or older. | HUD counseling, a financial assessment, property eligibility, mortgage insurance, and current program limits apply. |
| Proprietary Reverse Mortgage | A private reverse mortgage offered under an individual lender or investor’s guidelines. | Age rules, property types, proceeds, fees, and available payment choices vary by program. |
HECM requirements come from the federal program, but lenders may also have their own underwriting overlays. Proprietary programs are based on investor-specific guidelines. A feature available through one program may not be available through another.
What Does the Reverse Mortgage Financial Assessment Review?
A reverse mortgage does not work like a standard purchase mortgage, but there is still a qualification process. For a HECM, the lender completes a financial assessment.
The lender commonly reviews credit history, income, assets, property charges, and your history of paying housing-related expenses. The purpose is to determine whether you appear able and willing to keep up with property taxes, homeowners insurance, and other required charges.
Depending on the results, a portion of the proceeds may need to be set aside for future taxes and insurance. That set-aside can reduce the money available to pay off your current mortgage or provide funds to you.
Borrower eligibility and property eligibility are separate reviews. You may meet the financial requirements while the property still needs repairs, additional documentation, or approval under the selected program.
Your Responsibilities Do Not End at Closing
A reverse mortgage generally removes the required monthly principal and interest payment. It does not remove every housing expense.
You must generally:
- Live in the home as your principal residence under the program’s occupancy rules
- Pay property taxes on time
- Maintain required homeowners and flood insurance
- Keep the property in reasonable condition
- Pay applicable condominium fees or other property charges
- Respond to occupancy and loan servicing requests
If these obligations are not met, the loan could become due and payable. I spend time going over this because it matters. The goal is to have you comfortable with both the benefits and the responsibilities.
How You Can Receive the Remaining Proceeds
If money remains after paying the existing mortgage, liens, closing costs, and required set-asides, you may have different ways to receive it. Options can include a line of credit, monthly advances, a lump sum, or a combination, depending on the reverse mortgage program and whether the rate is fixed or adjustable.
Some HECM proceeds may be limited during the initial period after closing. The limits depend partly on the amount needed to pay mandatory obligations. I will show you what may be available at closing and what may become available later.
The payment choice matters. A lump sum may solve an immediate need, while a line of credit may preserve access to funds for later. There are tradeoffs with each direction.
When Another Loan Option May Make More Sense
A reverse mortgage is one option. It is not automatically the right answer for every homeowner.
If your main goal is short-term access to equity and you can manage monthly payments, a HELOC home loan may be worth reviewing. A standard refinance or home equity loan may also fit, depending on income, credit, equity, and the reason you need the funds.
A reverse mortgage may be helpful when the available proceeds can pay off the current loan and you want to remove the required monthly principal and interest payment. On the other hand, the loan balance normally grows as interest and charges are added. That can leave less equity in the property later.
We can compare the structure, monthly obligation, closing costs, and long-term effect of the available mortgage loan options. No worries if the information takes some time to settle in. I am happy to go over it again.
What to Gather Before Reviewing Your Options
A first review is easier if you have a few items ready:
- Your most recent mortgage statement
- Statements for any second mortgage or home equity line
- Your current property tax bill
- Homeowners and flood insurance information
- Condominium fee information, if applicable
- Basic income and asset documents
- An estimate of the home’s value
The estimate does not replace an appraisal. It simply gives us a place to start. If the numbers appear workable, we can explain counseling, the application, the appraisal, underwriting, and closing.
Let’s Review What You Owe and What May Be Available
If you still have a mortgage, I can help you compare the current payoff with an estimated reverse mortgage calculation. We will also review the costs, responsibilities, payment choices, and alternatives.
Please call, text, or email Slade Mortgage Group to talk through your scenario. I am licensed in Massachusetts and Florida. We can take this one step at a time and make sure you understand the next steps before you decide which direction to go in.
Frequently Asked Questions
Can a reverse mortgage pay off a home equity line of credit?
Yes, a home equity line generally can be paid off with reverse mortgage proceeds. The reverse mortgage must provide enough money to pay the first mortgage, the home equity line, required closing costs, and any other liens that must be cleared.
What happens if the appraisal is lower than expected?
A lower appraisal can reduce the reverse mortgage proceeds. If the revised amount will not cover the existing liens and required costs, you may need to bring funds to closing or reconsider the loan.
Can a co-borrower remain in the home if the other borrower dies?
An eligible co-borrower may generally remain in the home if the loan requirements continue to be met. Rules for an eligible non-borrowing spouse are different and depend on the program, loan documents, occupancy, and other requirements.
How long does a reverse mortgage take to close?
The timing varies based on counseling, documentation, the appraisal, title work, property issues, and underwriting. Delays can occur if liens, repairs, condominium approvals, or additional financial documents need to be addressed.
Can I get a reverse mortgage on a condominium?
A condominium may qualify, but both the borrower and property must meet the selected program’s guidelines. HECM condominium eligibility and proprietary program requirements can differ, so the association and project documents may need review.
This is educational and not financial advice. Loan programs and guidelines can change. Talk with a licensed mortgage professional about your specific scenario.
Mike Burton
Mike has over 33 years in the mortgage industry as a top originator for each institution he was employed with. Mike started Slade Mortgage Group in 1997 and formed a team of professionals to service clients by beating the banks.
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