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Financing term

Reverse Mortgage

A loan allowing homeowners, typically seniors, to convert home equity into cash without monthly payments, repaid when the home is sold.

Why Reverse Mortgage matters on the exam

This term belongs to Financing. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Reverse Mortgage

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A reverse mortgage allows a qualifying senior homeowner to:

  1. Convert home equity into loan proceeds without making monthly mortgage payments, with the loan repaid when the home is sold or the owner no longer occupies it
  2. Make increasing monthly payments to build equity faster than a standard amortizing loan
  3. Avoid paying property taxes and hazard insurance for as long as the loan is outstanding
  4. Transfer title immediately to the lender at closing in exchange for a guaranteed right of lifetime occupancy and a fixed monthly stipend paid by that lender
Show answer & explanation

Convert home equity into loan proceeds without making monthly mortgage payments, with the loan repaid when the home is sold or the owner no longer occupies it — A reverse mortgage lets an eligible senior borrower access home equity as cash or a line of credit while making no required monthly mortgage payments; the loan becomes due when the borrower sells, moves out, or dies.

Source: PSI National Real Estate Exam Content Outline §4 Financing

A common eligibility requirement for a federally insured (HECM) reverse mortgage is that the borrower must:

  1. Be under the age of fifty-five at application
  2. Occupy the property as a principal residence and generally be at least 62 years old
  3. Have no existing mortgage on the property, as is typically required
  4. Rent the property to a qualified tenant during the loan term
Show answer & explanation

Occupy the property as a principal residence and generally be at least 62 years old — Home Equity Conversion Mortgages, the most common reverse mortgage type, generally require the borrower to be at least 62 years old and occupy the home as a principal residence.

Source: PSI National Real Estate Exam Content Outline §4 Financing

Related Financing terms

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