What is a reverse mortgage?
A reverse mortgage is a type of loan that allows homeowners age 62 or older to convert their home equity into cash without having to make monthly mortgage payments. The loan is secured by the borrower's home, and the loan balance is repaid when the borrower dies, moves out of the home, or sells the home.
Reverse mortgages are often misunderstood.
There are a number of common myths about reverse mortgages, such as:
- Myth: Reverse mortgages are only for seniors who are struggling financially.
- Fact: Reverse mortgages can be a great option for homeowners of any age who have equity in their homes and need additional cash flow.
- Myth: Reverse mortgages are a form of government assistance.
- Fact: Reverse mortgages are not a form of government assistance. They are private loans that are offered by banks and other financial institutions.
- Myth: Reverse mortgages will leave you homeless.
- Fact: Reverse mortgages do not have to be repaid until you die, move out of your home, or sell your home. This means that you can continue to live in your home for as long as you want, even if you have a reverse mortgage.
Reverse mortgages can be a great option for homeowners who have equity in their homes and need additional cash flow. They are not a form of government assistance, and they will not leave you homeless.
If you are considering a reverse mortgage, it is important to speak with a qualified loan officer to learn more about how they work and whether they are right for you.
Improve your life by cashing in on your home’s equity
Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to “reverse” mortgages. They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.
In a “regular” mortgage, you make monthly payments to the lender. But in a “reverse” mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.
To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.
Three Types of Reverse Mortgages
The three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.
Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.
Loan Features
Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.