International Reverse Mortgage Lenders Organization

Free Public Service for Senior Homeowners, their Families,
Friends, Professional Advisors and Non-Profit Counselors.

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United States - Reverse Mortgages

Reverse Mortgages are becoming increasingly popular in America. The U.S. Dept. of Housing and Urban Development (HUD) created Reverse Mortgages to give seniors greater financial security.

About Reverse Mortgages.

The Reverse Mortgage became a valuable and safe tool for Senior Americans when the United States Congress authorized the Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) in 1989. An additional Reverse Mortgage became available in 1996 when the Federal National Mortgage Association (FannieMae) created the Home Keeper Reverse Mortgage.

What is a Reverse Mortgage?

A Reverse Mortgage is a special type of home loan that lets a homeowner convert the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to the homeowner: in a lump sum, in a stream of payments, or as a supplement to Social Security or other retirement funds. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrowers no longer use the home as their principal residence. HUD's Reverse Mortgage provides these benefits, and it is federally-insured as well.

Can I qualify for a HUD Reverse Mortgage?

To be eligible for a HUD Reverse Mortgage, HUD's Federal Housing Administration requires that you and your Spouse, if any, are a homeowner 62 years of age or older; have a very low outstanding mortgage balance or own your home free and clear; and that you meet with a HUD-approved counseling agency -- to make sure you understand what a HUD Reverse Mortgage will mean for you.

Can I apply if I didn't buy my present house with FHA mortgage insurance?

Yes. While your property must meet FHA minimum standards, it doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new HUD Reverse Mortgage will be a new FHA-insured mortgage loan.

What if I own a condominium, not a single-family home?

You can still qualify for HUD's Reverse Mortgage program. An eligible property must be your principal residence, but can be a single-family residence; a one- to four-unit dwelling with one unit occupied by the borrower; a manufactured home (mobile home); a unit in FHA-approved condominiums; and Planned Unit Developments. Your property must meet FHA minimum property standards, but you can fund repairs from your Reverse Mortgage.

What's the difference between a Reverse Equity Mortgage and a bank home equity loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income to qualify for the loan, and you are required to make monthly mortgage payments. A Reverse Mortgage works very differently. The Reverse Mortgage Lender pays you, and it is available regardless of your current income. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

Can the lender take my home away if I outlive the loan? No!

The reverse home mortgage loan does not become due until your home is sold, is no longer your primary residence or until you die. You cannot be forced to sell your home to pay off the mortgage loan even if the loan balance grows to exceed the value of the property And, HUD's Federal Housing Administration guarantees that you'll receive all the payments that are owed to you.

Will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the Reverse Equity Mortgage, plus interest and other finance charges, to the lender. All proceeds beyond what you owe belong to you or your estate. This means the remaining equity in your home can be passed on to your heirs. None of your other assets will be affected by HUD's Reverse Mortgage loan. No debt will ever be passed along to the estate or heirs. You retain ownership of your home, and may sell or move at any time.

how reverse mortgages work

Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining are eligible to participate in HUD's reverse mortgage program. The program allows homeowners to borrow against the equity in their homes.

Senior Homeowners can receive payments in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis as a line of credit. Homeowners whose circumstances change can restructure their payment options.

Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the borrower lives in the home. Lenders recover their principal, plus interest, when the home is sold or refinanced by the heirs. The remaining value of the home goes to the homeowner or to his or her survivors. If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.

The size of reverse mortgage loans is determined by the borrower's age, the interest rate, and the home's value. The older a borrower, the larger the percentage of the home's value that can be borrowed.

There are no asset or income limitations on borrowers receiving HUD's reverse mortgages.

There are also no limits on the value of homes qualifying for a HUD reverse mortgage. However, the amount that may be borrowed is capped by the maximum FHA loan limit varies for each city and county.

HUD's reverse mortgage program collects funds from insurance premiums charged to borrowers. Senior citizens are charged 2 percent of the home's value as an up-front payment plus one-half percent on the loan balance each year. These amounts are usually paid by the lender and charged to the borrower's principal balance.

FHA's mortgage insurance guarantees to the borrowers that they will continue to receive their loan proceeds even if the Lender goes bankrupt. The FHA insurance also guarantees Lenders that they will get their money back with interest and fees even if the homeowners outlive the longevity tables or the property values decrease. Thus while the FHA mortgage insurance increases the initial cost of getting a HECM reverse mortgage, it also allows the Lenders to sell HECM reverse mortgages at interest rates well below those of FannieMae and private lenders."

How do I receive my payments? You have five options:

Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

Term - equal monthly payments for a fixed period of months selected.

Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.

Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.

Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

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Australia - Reverse Mortgages

The most common form of an Equity Release available to seniors in Australia is a lifetime mortgage (often referred to as a reverse mortgage).

Lifetime Mortgage

A lifetime mortgage is usually structured as a loan secured with a first mortgage on residential property. Unlike a traditional mortgage, no repayments are due until all borrowers permanently vacate the property (hence the term “lifetime mortgage”). This will usually be when all borrowers have passed away, moved into long term aged care, or the property has been sold, at which point the “Lender” will seek repayment of the funds owing.

Funds released via the loan can be taken as a single lump sum, a series of instalments or drawn down under a “line of credit” facility. The options available will vary with each Lender. Whilst Lenders will accept voluntary repayments, no regular repayments are required.

No Repayments

Because there are no repayments due whilst the borrowers are living in the property, interest and fees are added to the loan balance during this period. This is often referred to as the “capitalisation” or “compounding” of interest and fees to the loan balance. Interest will usually not be charged until funds have actually been advanced by the Lender to the borrower.

When the loan and all interest and fees are due for repayment, the borrowers or their estate will typically have the option of repaying the loan out in full and retaining the property, or selling the property and repaying the Lender from the proceeds of the sale.

No Negative Equity Guarantee

A key feature and a requirement by SEQUAL of its members, is that the total loan balance repayable by the borrowers cannot exceed the net realisable value of the property at the time the loan is repaid. This is commonly referred to as a “No Negative Equity Guarantee”. This means that provided the terms and conditions of the loan have been met, the Lender cannot seek additional repayment from the borrowers personally, or from their estate, if the value of the property is insufficient to fully repay the loan.

In addition, this guarantee ensures that all borrowers have the right to live in the property for as long as they choose, even in the event that the total loan balance exceeded the property value.

These are contractual obligations given by the Lender to you, the borrower, and will be subject to the terms and conditions detailed in the loan documentation. These will vary with each Lender, but SEQUAL requires its members to clearly state these terms and conditions in the loan documentation. You should ask your solicitor to go through these terms and conditions with you should you proceed with an Equity Release loan.

Loan Amount

The amount of money that you can borrow will vary with each Lender. It will usually be based on the age of the youngest borrower and the current market value of your property, together with the minimum and maximum loan amounts that each Lender allows. The maximum amount you can borrow will usually be expressed as a Loan to Value ratio (LVR) being the available loan amount as a proportion of your property’s appraised value. The LVR usually increases with age.

Interest Rate

As with traditional mortgages, Lenders will offer their loan with a variable rate of interest, a fixed rate of interest or a combination of both. Again, the rates and options available will vary with each Lender.

Loan Portability

Some Lenders offer a ‘portability’ option, which means that should you wish to move home, you can transfer the loan to the new property. There may be some conditions and fees attached to this option and, depending on the value of the new property, you may be required to repay a portion of the loan.

Property Protection

Some Lenders offer the ability to protect a portion of the future realisable value of the property, in effect ensuring that a fixed percentage of this future property value will be available to you or your estate, irrespective of the loan balance at that time. Again this option may attract fees, and will be subject to terms and conditions.

Terms and Conditions

All Lenders will make the loan available to you subject to a set of terms and conditions. This is an important document that you should read thoroughly, and seek advice on from your solicitor.

These may include, but not be limited to, requirements that you as the borrower will:

adequately maintain the property
maintain an adequate level of buildings insurance on the property
notify the Lender if there has been change to the structure of the property
notify the Lender if any additional permanent residents have moved into the property.

These are all designed to protect the Lender as first mortgagee and to protect the future realisable value of the property. Check with the Lender what their specific terms and conditions are.

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Canada - Reverse Mortgages

ABCs of CHIP

Have you ever said to yourself, "Wouldn't it be nice if I had the money to do more of the things I want to do?" Now you can get the money you want with a CHIP Home Income Plan. It's a simple and sensible way to unlock the value in your home and turn it into cash to help you enjoy life on your terms. Let us introduce you to CHIP:

A CHIP Home Income Plan is a loan secured by the equity in your home.

A CHIP Home Income Plan is designed exclusively for homeowners age 60 and older. This age qualification applies to both you and your spouse.

You can receive from $20,000 to $500,000 from your home equity.
The specific amount is 10% to 40% of the current appraised value of your home, based on your age and that of your spouse, and the location and type of home you have.

You receive the money tax-free.
It is not added to your taxable income so it doesn't affect Old Age Security (OAS) or Guaranteed Income Supplement (GIS) government benefits you may receive.

You can use the money any way you wish.
Maybe you want to build up your savings and have extra income to cover your expenses. Perhaps you want to update your home or help your family without depleting your current savings. Or you have debts and monthly payments you'd like to get rid of. The only condition is that any outstanding loans secured by your home must be retired with the proceeds from your CHIP Home Income Plan.

No payments are required while you or your spouse live in your home.
The full amount only becomes due when your home is sold, or if you move out.

You maintain ownership and control of your home.
You will never be asked to move or sell to repay your CHIP Home Income Plan. All that's required is that you maintain your property and stay up-to-date with property taxes, fire insurance and condominium or maintenance fees while you live there.

You keep all the equity remaining in your home.
In our many years of experience, 99 out of a 100 homeowners have money left over when their CHIP Home Income Plan is repaid. And on average, the amount left over is 50% of the value of the home when it is sold.

Your estate is well protected.
We guarantee that the amount to be repaid will never exceed the fair market value of your home at the time it is sold. If your heirs want to keep your home, they can repay the CHIP Home Income Plan from other funds.

You can save on taxes.
If you decide to use the money you receive to buy non-registered investments such as GICs and mutual funds, you may be able to deduct the CHIP Home Income Plan interest charges from the income those investments earn. Be sure to consult a financial or tax advisor.

You can choose your interest rate term.
Your interest rate will be based on the length of term you choose - six months, one year, or three years.

You receive automatic interest rate discounts.
Interest rate discounts are given based on the length of time you have your CHIP Home Income Plan and the outstanding balance. The total interest rate discounts can add up to as much as 1.50% per year.

Annual Discount.
Regardless of the term selected, after three years, the rate at that time will be discounted by 0.25%, and will be discounted an additional 0.25% each year thereafter to a maximum of 1.50%.

Balance Discount.
You can receive an immediate and ongoing discount based on the outstanding balance of your CHIP Home Income Plan.

You have a number of payment options.

No payments are required for as long as you or your spouse live in your home.
If you wish, you can pay all or part of the accrued interest once every calendar year. The payment must be a minimum of $1,000 and can be made at any time during the year.
The full amount only becomes due when you and your spouse pass away, when the home is sold, or if you both move out.

You have the option to repay in full at any time. When you repay, an interest rate differential may apply (limited to 3 months' interest). If you repay within the first three years, a prepayment amount will apply. These may be waived or reduced in the event of death or a move to a long-term care facility or retirement residence.

There are some set-up costs.
The independent home appraisal typically costs $175 - $250 in major cities, but may be somewhat higher in rural areas or in cases of unique properties. Fees for independent legal advice are typically $300 - $600. Closing costs of $1,285 will be added to your CHIP Home Income Plan, which means you don't have to pay it directly.

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United Kingdom - Reverse Mortgages

What is SHIP?

Safe Home Income Plans (SHIP) is a company supported by the leading providers of home income and equity release plans. It was launched in 1991 and is dedicated entirely to the protection of planholders and promotion of safe home income and equity release plans.

All participating companies are pledged to observe the SHIP Code of Practice. Members display the SHIP logo in their brochures and other printed material as a guarantee to their customers.

The SHIP Code binds these companies to provide a fair easy-to-understand and full presentation of their plans. Any scheme endorsed with the SHIP logo will be properly explained and safe.

As a further safeguard, your own solicitor, who will oversee the transaction on your behalf, must sign a certificate to acknowledge that the essential features and implications of your chosen SHIP Plan have been brought to your attention. No SHIP protection plan can proceed without a signed certificate.

A short history of home income and equity release plans

In 1965, the first reversion income scheme was introduced by Home Reversions (later named Hodge Equity Release). During 1972, the first home income plan based on a mortgage and annuity was issued. Cash reversion plans were introduced in 1978 by J G Inskip & Co. (later incorporated under Home & Capital Trust Ltd.). In 1986, Stalwart Assurance (later named GE Life) and Allchurches Life Assurance (now Ecclesiastical Life) introduced schemes. Unsafe schemes including investment bond schemes and rollup plans with variable interest rates began to appear in 1988. These left many elderly people in financial difficulties, and were banned in 1990.

In 1991 SHIP was launched to promote safe schemes.

The founder members were Ecclesiastical Life, Hodge Equity Release, Home & Capital Trust and GE Life.

Since then SHIP has enabled the home income plan market to expand again. Surveys carried out by member firms point to over 98% of plan holders being happy with their plans.

What are safe income plans and equity release plans?

There are a number of schemes which enable you to tap into the value of your home without having to sell it and move out.

Over the past forty years, thousands of retired homeowners have found that these plans provide a safe and successful method of releasing regular income or a cash lump sum, to improve the quality of their life in retirement.

The alternative may not be very attractive. Too many elderly homeowners find themselves in the unenviable position of having to watch every penny they spend from day to day, while most of their money remains locked up in their single biggest asset - their home.

Home income plans and equity release plans can resolve the problem safely.

But there are other schemes on the market which make the same promises - and bitter experience has shown that they are neither safe nor successful. To confuse matters, some of these schemes have sometimes been described as home income plans or equity release plans, too.

The purpose of this website is not to recommend any particular plans to you. Its aim is solely to help you to distinguish between the various plans available and to enable you to make an informed and sensible choice.

A comfortable retirement with any SHIP plan

Companies subscribing to the SHIP Code of Practice undertake to provide a fair, simple and complete presentation of any home income plan they may offer you.

The Code has been welcomed by Age Concern.

You will be given full details of your own obligations, commitments and rights under the plan, including security of tenure on your home for you and your partner (if applying jointly) for the rest of your lives.

You will be told what costs are involved, your tax position and the possible effect on your plan of moving house and of changing house values, as well as the effect of the transaction on the value of your estate on death.

Your own solicitors will act on your behalf and look after your interests at every stage. Before your SHIP scheme can be finalised, they will be required to sign a certificate confirming that the principal terms of the contract have been fully explained to you.

A SHIP plan guarantees that you cannot lose your home - whatever happens to the stock market or to interest rates.