The home keeper mortgage is the Federal National Mortgage Association (Fannie Mae) reverse mortgage offering. Fannie Mae does not make the loan, but will purchase the mortgage in the secondary market (provided the originating lender follows certain guidelines).
To qualify, you must be at least 62 years old and have a free and clear home or a low mortgage with substantial equity. The maximum amount you can borrow is generally higher than the HECM and is based on average home prices, rather than specific areas. The interest rate on the adjustable loan uses a CD (certificate of deposit) index rather than the Treasury Bill index used by the HECM. The CD rate will move at a slower pace and will benefit the borrower if rates rise. There is no personal liability on the part of the borrower or the borrower’s estate. Only the mortgaged property can be used for repayment, unless the borrower or borrower’s heirs choose to repay from other sources. In other words, if there is still equity in the home, the heirs may wish to sell the property or refinance it and pay off the reverse mortgage loan. Like other reverse mortgage programs, loan origination, closing costs, and monthly service fees can all be financed. Counseling is also required by an approved counselor. The payment options include tenure, set term, or line of credit. The line of credit option is not available in Texas.
The biggest disadvantage of the home keeper is that there is no automatic increase in the amount you may borrow. Unless you choose tenure, you can borrow only up to the original amount for which you qualified. By contrast, the HECM loan amount increases each year. As discussed in the previous example, if you selected the line of credit option, qualified for a $100,000 loan under an HECM, and borrowed nothing for the first year, your maximum loan amount would rise to about $106,000. The same scenario under a home keeper would still have a loan amount after one year at $100,000.
The advantage to the home keeper is the higher initial amount you can borrow. This may provide even more financial security in certain circumstances.
As the next question and answer shows, borrowing the entire amount at closing and buying an annuity may be your best option.