Reverse Mortgages

A reverse mortgage is a type of home equity loan that allows you to convert some of the existing equity in your home into cash while you retain ownership of the property. Equity is the current cash value of a home minus the current loan balance.

A reverse mortgage works much like a traditional mortgage, except in reverse. Instead of the homeowner paying the lender each month, the lender pays the homeowner. As long as the homeowner continues to live in the home; the home must be primary residence, borrower(s) must be 62, and borrower(s) must pay taxes and insurance, then no repayment of principal, interest, or servicing fees are required. The funds received from a reverse mortgage may be used for anything, including housing expenses, taxes, insurance, fuel or maintenance costs.

To qualify for a reverse mortgage you must meet the folowing guidelines:

  • Borrowers must be at least sixty-two years of age or older
  • The property must be either 1-4 unit primary residences, condominiums, or manufactured homes that meet FHA’s requirements
  • Homeowners must own the property as their primary residence and should have substantial equity in the home
  • Borrowers must not owe any back debt to the government
  • Income and credit scores are not a criteria to qualify

You may choose to receive the reverse mortgage funds in a lump sum, monthly advances, as a line-of-credit, or a combination of the three, depending on the reverse mortgage type and the lender. The amount of money you are eligible to borrow depends on your age as well as the non-borrowing spouse, the amount of equity in your home, and the interest rate set by the lender.

Because the borrower retains ownership of the home with a reverse mortgage, the borrower also continues to be responsible for taxes, repairs and maintenance. The lender however will hold a first position lien on the property.

Depending on the plan selected, a reverse mortgage is due with interest either when the homeowner permanently moves, sells the home, dies, or the end of a pre-selected loan term is reached. Defaulting on loan terms will also cause the loan to become due and payable. If the homeowner dies, the lender does not take ownership of the home. The heirs have an option to pay off the loan or allow the lender to sell the home to recover the remaining loan amount. They can retain ownership by typically by refinancing the loan into a forward mortgage (if the heirs meet eligibility requirements) or by using the proceeds generated by the sale of the home.

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