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Reverse Mortgages

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Reverse Mortgage Loans

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. Instead of making a monthly mortgage payment to your lender, the lender pays you. You are not required to make monthly mortgage payments on your reverse equity loan when you are in it as long as loan terms are met. Funds obtained from a Reverse Mortgage may be used for any purpose such as home improvement, vacation, a new car, or savings.

To qualify for an 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 the age of the youngest borrower or eligible non-borrowing spouse, the equity in your home, and the interest rate you qualify for.  Loan amount is based on the lesser of the appraised value of the home, FHA’s HECM lending limit, or the sales price. (These materials are not from HUD or FHA and were not approved by HUD or a government agency)

Because you retain title to your home with a Reverse Mortgage, you also remain responsible for taxes, insurance, 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 loan may also be called due and payable if you do not comply with the terms of the loan.  The lender does not take immediate 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.

Reverse Mortgage Advantages

  1. No monthly mortgage payments are required as long as you live in your home.
  2. Cash received from your Reverse Mortgage is usually tax-exempt (consult your tax advisor) and does not affect regular Social Security or Medicare benefits, but may affect eligibility for other types of government assistance such as SSI and Medicaid.
  3. You retain ownership of your home as long as you continue to pay taxes and insurance and maintain the home.
  4. You can use the proceeds to pay off an existing mortgage and eliminate your monthly mortgage payments.  Note that all existing liens must be paid off at closing.
  5. Reverse Mortgages provide you with a source of cash flow that can be used to improve your standard of living and maintain your independence.

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