The Truth About Reverse Mortgages for Arizona Homeowners Over 55

By The Klaus Team

The Kenny Klaus Team is one of the most successful real estate teams in America. Since 2010, The Kenny Klaus Team has been consistently ranked in the Top 120 teams nationwide by Real Trends and the Wall Street Journal.

For a lot of people, the first reaction to the phrase “reverse mortgage” is a quiet “that sounds like a scam.” And honestly, if that was your reaction, it means you’ve been paying attention. For decades, reverse mortgages carried a reputation problem, and some of it was earned. A lot of it wasn’t.

In a recent episode of State 48 Homeowner, Scott Kooiman sat down with Richelle Hopkins, a reverse mortgage specialist with more than 20 years of experience, and Steve Farrington of Mutual of Omaha Mortgage, to sort out which fears still hold up and which belong to a version of this product that no longer exists.

The product changed, and so did the people using it. As Richelle puts it, the loan itself hasn’t changed all that much over her two decades in the business, but who uses it, and why, has changed completely. It used to be a last resort for a widow about to lose her home. Now it’s a planning tool people set up early in retirement, on purpose. The reason is simple math: for most people over 65, roughly two-thirds of their retirement wealth is locked inside the walls of their home. A reverse mortgage is one way to put that equity to work while you’re still living in the house, without a required monthly mortgage payment for as long as it stays your primary residence.

It is not a home equity line of credit. This is where a lot of the confusion starts. A traditional mortgage, a HELOC, and a cash-out refinance all require monthly payments. A reverse mortgage does not. The interest accrues and is settled when the home is eventually sold. That single difference is what changes the retirement math so significantly.

Who actually qualifies. One homeowner or buyer needs to be at least 55, and the home has to be your primary residence, though you can still travel and even own a second home. The property has to meet program requirements, and the product works on single-family homes, townhomes, patio homes, many condos, and even some manufactured homes.

Here’s the part that surprises people: qualifying can be easier than a traditional home equity line. Because there’s no required monthly payment, the income bar is lower, and as Richelle explains, credit score doesn’t drive the rate the way it does in traditional lending. The equity in the home is the primary thing being evaluated.

Three ways to access your equity. A reverse mortgage isn’t a single lump-sum product. You can set it up as a line of credit you draw on when you choose, as monthly payments that come in like a Social Security check, or as cash, and you can combine them. The line-of-credit option has a feature most people never hear about: the unused portion has a guaranteed growth rate, so the longer you leave it untouched, the larger it gets, regardless of what happens to your property’s value or the market.

Richelle’s client Rick treated his exactly this way. Free and clear on his home and in his early 60s, he set up a line of credit he never intends to touch, the way you’d carry insurance, a secured, growing reserve he can reach in a few business days if he ever wants it, with no new appraisal, credit check, or income verification, because he did all of that up front.

The misconceptions, answered honestly. The biggest one is that the bank takes your home. That traces back to the 1960s, when private lenders would put their name on the title, and when the borrower passed, they’d take the house. Since FHA got involved in the late 1980s with the home equity conversion mortgage, that isn’t how it works. The lender can only hold a first-position lien, the same as any traditional mortgage. You still own the home.

The second fear, that a reverse mortgage will make you lose your home, usually comes down to the ongoing responsibilities: you still have to pay property taxes, homeowners insurance, and any HOA dues. People who lost homes did so by falling behind on those, not because of the loan itself, and since FHA added a financial assessment in 2014, there are now protections, like a set-aside, to help the right person stay current.

The third, that it’s simply too expensive, depends entirely on what you’re comparing it to. As Richelle’s client Bruce discovered, when he ran the numbers against pulling from his investment accounts, with the taxes and lost growth that came with it, the reverse mortgage was actually the less expensive and less risky way to fund the second home he wanted.

What happens to your heirs. This is where the protection matters most, and it’s the part that reassures the adult children who often raise the questions. A reverse mortgage is a non-recourse loan. When the last borrower leaves the home, the heirs have roughly 6 to 12 months to sell it, pay off the balance, and keep any remaining equity. If the market has dropped and the balance exceeds what the home sells for, that shortfall is covered by FHA insurance.

As Richelle puts it plainly, the homeowner can never pass debt onto their heirs, and no other assets, savings, or other property can be touched. The home is the only thing that stands for the loan.

The built-in consumer protection most people don’t know about. Before you can move forward, there’s a mandatory counseling session that has nothing to do with the lender. An independent third party spends 45 minutes to an hour making sure you understand the costs, the interest, and your responsibilities, from a non-lender point of view. Richelle considers it a win when clients come back and say it was a waste of time, because it means she already did her job educating them. As Scott notes, that kind of mandatory independent review doesn’t exist in traditional mortgage lending. It’s built into this process specifically because of who these borrowers are.

Buying a home with a reverse mortgage. The strategy most people, and even most real estate agents, don’t realize exists: you can use a reverse mortgage to buy, not just to refinance. It’s been available since 2009. In a market like Arizona, where prices have pushed a lot of retirees out of reach of the homes they want, it can change the whole equation.

A buyer with $400,000 in cash who’s looking at $550,000 to $650,000 homes and doesn’t want a monthly payment can, in the right circumstances, bring that same $400,000 to the table and buy a $700,000 home, with no required monthly mortgage payment for as long as they live there. The rest is funded by the reverse mortgage. Others use it to preserve cash, making a one-time down payment instead of paying all cash, and keeping the difference working elsewhere in their retirement plan. Qualification is equity- and age-based, not income-based, so a retired buyer who couldn’t qualify for a traditional mortgage on that home might qualify for this with ease.

You’re not locked in. A final misconception stops people before they even start: the idea that a reverse mortgage traps you in the home. It doesn’t. Richelle’s client Debbie set one up and, six months later, decided to sell and move in with a longtime friend. She simply sold the home, paid off the reverse mortgage balance, and walked away with the remaining equity, exactly like a traditional mortgage. You own the home, you can sell whenever life calls for it, and the equity that’s left is yours.

Richelle’s own framing is the right one to end on: if you’re 55 or older, you should at least get educated about how a reverse mortgage works. Not because it’s right for everyone, it isn’t, but because the worst outcome in retirement planning isn’t making the wrong choice. It’s never knowing you had a choice at all.

If you’re thinking about buying or selling a home in Arizona, whether a reverse mortgage for purchase is part of the picture or you’re planning a more traditional move, our team would be glad to help you weigh your options and put a plan together. Call us at 480) 354-7344, email us at solutions@klausteam.net, or visit klausteam.com. We look forward to hearing from you.