Reverse Mortgage

A growing number of your senior customers and their adult children have been buying these innovative loans in recent years to augment retirement income, pay for long-term health care, or even pay for a dream vacation. According to the U.S. Department of Housing and Urban Development, the number of reverse mortgages issued has more than quadrupled this year alone compared to the early 1990s when these products were first introduced.

It is essential to address the needs of our senior population. Having the tools to assist this growing marketplace is essential to your business. Vertical Lend understands this and now gives you the ability to offer reverse mortgages to your clients.


Quick Links to Reverse Mortgage Topics:

What is a Reverse Mortgage?
The Benefits of a Reverse Mortgage
Myths and Misconceptions of Reverse Mortgages
Reverse Mortgages as a Retirement Planning Tool
Reverse Mortgages and Estate Planning
Case Studies - Profiles of Ideal Candidates

What is a Reverse Mortgage?

A reverse mortgage gives homeowners aged 62 or older the opportunity to take a loan against the equity in their home. Unlike a "traditional" mortgage where the loan principal and interest are paid to the lender on a monthly basis, a reverse mortgage defers payments until the maturity event (when the borrower sells the home or leaves the residence permanently) and can provide the borrower with a monthly income stream.



The Benefits of a Reverse Mortgage:

  • No repayment until home is sold or borrower permanently leaves the residence
  • Unlocks the equity built into the home
  • No income or credit qualifications
  • Proceeds received as tax-free income
  • Interest is paid at time loan is repaid - not during the loan*
  • FHA insured or Fannie Mae guaranteed
  • Flexible payment options
  • No debt passes to heirs
  • In the case of joint borrowers, payments will continue in the event of the death of one of the parties
  • Does not affect Social Security or Medicare benefits

*The interest rate varies depending on the reverse mortgage program selected. All programs offer adjustable rates and have lifetime caps on the maximum allowable rate. Rates are based on the 1-year T-bill index plus 1%.

Why a Reverse Mortgage is better than a "forward loan" (i.e. 2nd loan or home equity line of credit):

  • A credit report is not a considerable factor in determining loan approval
  • The client is not required to document income
  • Their is no monthly obligation to repay the loan

Myths and Misconceptions of Reverse Mortgages:


  • Fact: There are no limitations on how proceeds are used.
  • Borrowers may:
    • Pay off debt, including mortgage and credit cards
    • Make needed home repairs
    • Pay for home health care
    • Make retirement investments
    • Purchase long-term care insurance
    • Travel
    • Help grandchild with college expenses
    • Pay real estate taxes


  • Fact: Reverse mortgages are a safe income option for seniors.
    • Borrower's name remains on title
    • Debt owned on loan does not pass to heirs
    • Borrower will never owe more than the loan balance or value of the property - whichever is less
    • Reverse mortgages are regulated by government and industry associations like AARP and NRMLA (National Reverse Mortgage Lenders Association)



Reverse Mortgages as a Retirement Planning Tool

Proceeds can be used to fund a variety of financial products:

  • Augment monthly income
  • Long term care funding
  • Estate planning tool
  • Retirement home purchase
  • Charitable and family gifting funding

Reverse Mortgages and Estate Planning

A reverse mortgage may reduce the value of a client's estate. The full value of a home that is owned outright is subject to estate taxes at death, but a reverse mortgage reduces the value of a home, thereby lowering the applicable estate taxes due on a sizeable estate.


Case Studies: Examples of successful mortgage planning strategies

Case Study 1: Reverse mortgage funds grandchildren's college savings

  • Client Background: An active California couple, aged 75 and 73, have annual expenses of about $60,000. Their income is derived from a $2 million bond portfolio, a $500,000 stock portfolio, and a $50,000 per year pension. These assets allow them to enjoy the lifestyle they want and still remain in their home.
  • Need: The couple would like to help with their four grandchildren's future college expenses by adding to funds in existing 529 plans. Tax laws allow them to contribute $10,000 each ($20,000 for each couple) for each grandchild per year, for a total of $80,000. They want to do this without disturbing their current income.
  • Solution: Using a reverse mortgage, they were able to derive funds from a significant asset, their home, which is valued at $3,750,000. They converted this equity into $698,012 of tax-free cash, without required monthly payments or giving up their home.
  • Result: From a line of credit that grew 5% annually, they could contribute $80,000 each year to their grandchildren's 529 funds, reduce the taxable portion of their estate, and keep their annual income.

Case Study 2: Reverse mortgage provides client with new estate planning options

  • Client Background: A 75-year-old widow has a $75,000 annual income derived from a $1 million municipal bond portfolio and her deceased husband's IRA, valued at $500,000. Combined, this income allows her to enjoy a comfortable lifestyle while remaining in her home of 23 years.
  • Need: She wanted to efficiently transfer a significant portion of her estate to her heirs. The obvious answer was a life policy. The obstacle was funding this policy without affecting her annual income.
  • Solution: With a reverse mortgage, she was able to obtain funding from a significant asset, her home, without monthly payments or putting her house on the market. Her $750,000 home generated $218,875. With it, she could purchase a single premium immediate annuity with an annual net after-tax payment of about $20,000. The payment was gifted into a trust, funding a $600,000 life policy.
  • Result: A reverse mortgage reduced the taxable portion of her estate while the life policy increased the non-taxable portion. Combined, this increased the estates' after-tax value by as much as 32%. What's more, her income is unaffected and she lives in her home for as long as she chooses.

Case Study 3: A reverse mortgage lets couple plan a comfortable retirement

  • Client Background: A couple in their middle sixties was beginning to think about retirement. They had a substantial nest egg, plus the proceeds from the sale of their previous home. They also had a mortgage payment that was too big for their retirement budget.
  • Need: The couple wanted to remodel their beachfront house, and live there for the rest of their lives without affecting current income.
  • Solution: The couple's financial professional replaced their $360,000 mortgage with a $500,000 reverse mortgage. The couple eliminated their mortgage payments and had approximately $140,000 remaining from the reverse mortgage proceeds.
  • Result: The couple used the money for a bigger remodeling project than they could originally afford. The remodeling increased the value of their home substantially, and because of its desirable location, the value of the property will likely keep pace with their reverse mortgage balance.