What is the correct answer to: Which statement about reverse mortgages is TRUE?

The correct answer is The loan becomes due when the borrower sells, moves out, or passes away. Under the terms of HUD's Home Equity Conversion Mortgage (HECM) program — the most common type of reverse mortgage — the loan becomes immediately due and payable when the last surviving borrower sells the home, permanently moves out (defined as living elsewhere for more than 12 consecutive months), or passes away, as codified in the HECM regulations at 24 C.F.R. § 206.27. This is the defining characteristic of a reverse mortgage and the correct answer because it accurately describes the loan's maturity event without misrepresenting ownership or payment obligations.

What background knowledge is needed for this Financing question?

The Home Equity Conversion Mortgage (HECM) program was established by Congress under the Housing and Community Development Act of 1987 and became operational in 1989 under HUD's administration. The program was created to address the growing problem of 'house-rich, cash-poor' senior citizens who had significant home equity but insufficient retirement income. Over the decades, the program has undergone significant reforms — particularly after 2013 — to add financial assessment requirements, limit upfront draws, and protect non-borrowing spouses from immediate displacement upon the borrower's death. Today, HECMs represent approximately 90% of all reverse mortgages originated in the United States.

What is a good way to remember the answer to this Financing question?

Think of a reverse mortgage as a 'regular mortgage played backwards' — in a regular mortgage, you make payments and your debt shrinks; in a reverse mortgage, you receive payments and your debt grows. The loan 'reverses course' and comes due only when you leave the home permanently through the three S's: Sell, Scoot (move out for 12+ months), or Say goodbye (pass away). Picture an hourglass flipped upside down — the sand (equity) flows out over time until it's all gone. Remember that a reverse mortgage becomes due when the borrower Sells, Moves out permanently, or Terminates (passes away).

What exam tip applies to this Financing question?

Reverse mortgage questions almost always test one of three concepts: no monthly payments required, borrower retains ownership, or the three trigger events for repayment (sale, permanent move-out, death). If an answer choice says the lender takes ownership or monthly payments are required, eliminate it immediately as these are classic distractor traps.

How does this Financing concept apply in real world practice?

Consider Margaret, a 74-year-old widow who owns her home free and clear, valued at $400,000, but lives on a fixed Social Security income of $1,800 per month. She obtains a HECM reverse mortgage and receives $1,200 per month in tax-free loan advances. She makes no monthly payments, continues to own her home, and pays her property taxes and insurance as required. When Margaret passes away at age 85, her estate has 12 months to either repay the loan balance (which has grown to approximately $280,000 due to accrued interest) or sell the home — any remaining equity after repayment passes to her heirs.

FinancingMEDIUM

Which statement about reverse mortgages is TRUE?

Correct Answer

B) The loan becomes due when the borrower sells, moves out, or passes away

With a reverse mortgage, no monthly payments are required. The loan becomes due when the borrower sells the home, moves out for more than 12 months, or passes away. The borrower retains ownership and must maintain property taxes, insurance, and maintenance.

Answer Options

Monthly mortgage payments are required

The loan becomes due when the borrower sells, moves out, or passes away

The lender takes ownership of the home

Interest is tax-deductible annually

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The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.

TILA (Truth in Lending Act)

TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.

Trustee Sale

A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.

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Which statement about reverse mortgages is TRUE?

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Why the Other Options Are Wrong

Deep Analysis of This Financing Question

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Common Mistakes to Avoid on Financing Questions

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