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Low-Cost Public Loans

The least expensive reverse mortgages are the ones offered by state or local governments. But these "public sector" loans generally can be used for only a specific purpose, like home repairs. Many are only available to persons with low to moderate incomes. But the low cost can make these loans very attractive.

Deferred Payment Loans (DPLs)

Many local and some state government agencies offer "deferred payment loans" (DPLs) for repairing or improving your home. This type of reverse mortgage gives you a one-time, lump sum advance. No repayment is required for as long as you live in your home.

DPLs aren't available everywhere, and they can be difficult to find, in part because they go by a variety of names and descriptions. Contact your city or county housing department, area agency or county office on aging, or the nearest community action or community development agency. Also contact your state housing finance agency. If these agencies don't offer DPLs, they may know where to find them. They may also offer other low-cost home repair loans with very affordable monthly payments.

Eligibility rules vary from program to program. Most are limited to homeowners with low or moderate incomes. Many place a limit on a home's value, or lend only in certain areas. Some have a minimum borrower age or a disability requirement.

DPLs can be used only for the specific types of repairs or improvements that each program allows. This may limit you to projects that replace or repair basic items such as your roof, wiring, heating, plumbing, floors, stairs, or porches. Many programs will cover improvements in accessibility or energy efficiency. Such modifications may include the installation of ramps, rails, grab bars, storm windows, insulation, or weatherstripping.

You may be able to combine a DPL with a HECM loan. To do this, the DPL lender must agree to be repaid after the HECM is repaid.

The best thing about DPLs is their very low cost. Generally they have no origination fee, no insurance premium, very low (if any) closing costs, and very low (or no) interest.

If interest is charged, it is often done on a "fixed" basis, that is, the rate never changes. Many DPL programs also charge "simple" rather than "compound" interest. This means that interest is not charged on any of the interest that has been previously added to the loan balance.

Some DPL programs even forgive part or all of the loan if you live in your home for a certain period of time. In other words, you may end up paying nothing back ever . If you can find and qualify for a "forgivable" DPL, you would most likely have more equity left at the end of the loan than you had at the beginning. In any case, a DPL is one of the best bargains you can find.

If you do get a DPL, you still must be careful dealing with home improvement contractors. Ask the DPL program for help in finding a reliable contractor and developing a contract that protects you.

Property Tax Deferral (PTD)

Some state and local government agencies offer "property tax deferral" (PTD) loans. This type of public sector reverse mortgage generally provides annual loan advances that can be used only to pay your property taxes. No repayment is required for as long as you live in your home.

According to a 2007 AARP study, some type of PTD program is available in parts or all of the following states: Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, North Dakota, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, Wyoming, and the District of Columbia.

In some states, PTD is available on a uniform, statewide basis. In many others, it is not available in all areas, or is not the same in all the areas where it is available. Eligibility rules vary a lot. Most programs have a minimum age of 65 and are limited to homeowners with low or moderate incomes.

If you live in a state listed above, contact the local government agency to which you pay your property taxes. This agency can tell you if the program is available in your area and what you must do to qualify. It also can give you details on how the program works.
 
The amount of the annual PTD loan advance is generally limited by the amount of your property tax bill for that year. Some programs limit the annual advance to some part of the tax bill or to a specific amount. In the most restrictive programs, the loan can only be used to pay for special assessments.

Most programs limit the total amount you can borrow over the life of a PTD loan. In other words, you may not be eligible for more money in the future. Most PTD loans will not let you have a PTD loan and another reverse mortgage at the same time.

Like deferred payment loans, PTD loans generally do not charge origination fees or insurance premiums and have low, if any, closing costs. The interest rate is usually fixed, but it varies from program to program. In some cases, interest is charged on a simple basis, that is, no "interest on interest."

Connecticut and Montana

State housing finance agencies in Connecticut and Montana offer specialized reverse mortgage loans. The Connecticut plan is limited to persons who are no longer able to function on their own.

These plans provide limited lump sum advances, plus monthly advances that stop after a fixed period of time. But the loan does not have to be repaid for as long as you live in your home. The cost of these plans is very low, but the benefits are limited as well. For more information on the Connecticut plan, call 1-860-721-9501 or 1-800-533-9208. For information on the Montana program call 1-800-761-6264 or 1-406-841-2840.

AARP does not endorse any reverse mortgage lender or product.

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