Reverse Mortgages

If you are age 62 or older and are "house-rich and cash-poor," a reverse mortgage may be an option to help increase your income. However, because your home is such a valuable asset, you may want to consult with your family, attorney, or financial advisor before applying for a reverse mortgage. Knowing your rights and responsibilities as a borrower may help to minimize your financial risks and avoid any threat of foreclosure or loss of your home.

A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership.
A reverse mortgage works much like traditional mortgages, only in reverse. Rather than making a payment to your lender each month, the lender makes a payment to you.
To qualify for a reverse mortgage, you must own your home.
Depending on the plan you select, your reverse mortgage becomes due with interest when you permanently move, sell your home, die or reach the end of the selected loan term.

How Reverse Mortgages Work

A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership. Unlike conventional home equity loans, most reverse mortgages do not require repayment of principal, interest, or servicing fees for as long as you live in your home. Funds obtained from an reverse mortgage may be used for any purpose, including meeting housing expenses such as taxes, insurance, fuel, and maintenance costs.

Requirements and Responsibilities of the Borrower

To qualify for a reverse mortgage, you must own your home. The reverse mortgage funds may be paid to you in a lump sum, in monthly advances, through a line-of-credit, or in a combination of the three, depending on the type of reverse mortgage and the lender. The amount you are eligible to borrow generally is based on your age, the equity in your home, and the interest rate the lender is charging.

Because you retain title to your home with a reverse mortgage, you also remain responsible for taxes, repairs, and maintenance. Depending on the plan you select, your reverse mortgage becomes due with interest either when you permanently move, sell your home, die, or reach the end of the pre-selected loan term. The lender does not take title to your home when you die, but your heirs must pay off the loan. The debt is usually repaid by refinancing the loan into a forward mortgage (if the heirs are eligible) or by using the proceeds from the sale of your home.