A reverse mortgage allows older homeowners to convert their home equity into cash without selling the property. But not every financial institution offers them, and certain lenders have left the market entirely.
Of the ones that do still offer reverse mortgages, the loan options, customer service, and eligibility requirements can vary quite a bit. Let’s look at which types of banks offer reverse mortgages and how to choose the right lender.
See if you qualify for a reverse mortgage. Start here.
What banks do reverse mortgage lending?
Reverse mortgages were first introduced in 1961, and became more widely available after the Federal Housing Administration (FHA) began insuring Home Equity Conversion Mortgages (HECMs) in 1989.
But despite their long history, relatively few banks currently offer reverse mortgages today.
That’s because reverse lenders tend to be risky for lenders. They’re non-recourse loans, which means the lender can only recoup the funds by selling the home. So if the loan balance exceeds the property’s value, the lender has to absorb that loss.
Plus, these loans are more complex to service, so many banks aren’t equipped to handle them. This market is heavily regulated to protect seniors, so lenders must be able to comply with the FHA and Consumer Financial Protection Bureau (CFPB).
Today, most reverse mortgages are issued by non-bank lenders focused specifically on this type of loan. Because the FHA insures HECMs, any FHA-approved lender may be able to originate them. If you’re interested in a reverse mortgage, it’s worth asking your local bank whether they have a reverse mortgage program or work with an approved partner.
How to pick a reverse mortgage lender
If you’re considering a reverse mortgage, it’s important to choose the right lender since they can differ widely in terms of the interest rates, fees, and the level of guidance provided. Here are a few things to consider when evaluating potential lenders:
- Compare loan options: There are three different types of reverse mortgages: HECMs, jumbo reverse mortgages, and single-purpose reverse mortgages. Some lenders only offer standard HECMs, while others provide jumbo reverse mortgages for higher-value homes. Learn about each loan type and consider which one best fits your needs.
- Speak to an HUD-approved counselor: This counseling is mandatory for HECMs, but it’s beneficial for all reverse mortgages. A HUD-approved counselor can help you understand the benefits and risks of a reverse mortgage and determine whether it’s the right choice for you.
- FHA approval: If you’re pursuing a HECM, make sure any lenders you’re considering are approved by the FHA. FHA-approved lenders must follow strict federal guidelines, which includes additional consumer protections.
- Costs and fees: Reverse mortgages come with upfront costs, including origination fees, mortgage insurance premiums, and closing costs. Compare estimates from multiple lenders to see which offers the best terms.
- Consider the lender’s reputation: You should also account for each lender’s experience and reputation. Make sure any lenders you consider are members of the National Reverse Mortgage Lenders Association (NRMLA), since membership comes with strict requirements.
See if you qualify for a reverse mortgage. Start here.
Why take out a reverse mortgage?
A reverse mortgage isn’t the right choice for everyone, but it can be a good solution for certain retirees. A reverse mortgage allows you to turn your home equity into cash that you can use for everyday expenses, home improvements, or healthcare costs. You don’t need to make monthly payments as long as you live in the home, keep up with property taxes and insurance, and maintain the property.
Borrowers must be at least 62 years old, or 55 for jumbo reverse mortgages. You must agree to use the home as your primary residence and have enough equity to pay off the existing mortgage balance. Once you qualify, you can receive the funds as a lump sum, a line of credit, or regular monthly payments.
The loan becomes due when the borrower moves out, sells the property, or passes away. At that point, the home is typically sold to repay the loan balance, with any remaining equity going to the borrower or their heirs. For homeowners with significant equity and limited income, a reverse mortgage can provide financial breathing room without needing to downsize or take on additional debt.
See if you qualify for a reverse mortgage. Start here.
The bottom line
While some banks have stepped back from reverse mortgage lending, specialized lenders and smaller financial institutions continue to offer these products.
Choosing the right lender involves comparing your options and understanding the costs involved.
Start by talking to an HUD-approved housing counselor who can help you compare lenders and decide whether this loan type fits your retirement strategy.
