What Is A Reverse Mortgage?

A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home.

It can be paid to you in one lump sum, as a regular monthly income, or at the times and in the amounts you want.

The loan and interest are repaid only when you sell your home, permanently move away, or die.

How Do Reverse Mortgages Work?

• Most require no repayment for as long as you live in your home.
• They are repaid in full when the last living borrower dies, sells the home, or permanently moves away.
• Because you make no monthly payments, the amount you owe grows larger over time. By law, you can never owe more than your home's value at the time the loan is repaid.
• You continue to own the home, so you must pay the property taxes, insurance, and repairs. If you fail to pay these, the lender can use the loan to make payments or require you to pay the loan in full.

Reverse Mortgage Eligibility

Eligible Homeowners

• All homeowners must be at least 62 years old.
• At least one owner must live in the house most of the year.

Eligible Homes

• Single family, one-unit dwelling.
• Two-to-four unit, owner-occupied dwelling.
• Some condominiums, planned unit developments or manufactured homes.

NOTE: Cooperatives and most mobile homes are not eligible.

How Much Will I Get with a Reverse Mortgage?

Reverse mortgages can be paid to you:

• All at once in cash
• As a monthly income
• As a credit line that lets you decide how much you want and when
• In any combination of the above

The amount you get usually depends on your age, your home's value and location, and the cost of the loan. The greatest amounts typically go to the oldest owners living in the most expensive homes getting loans with the lowest costs.

Most people get the most money from the Home Equity Conversion Mortgage (HECM), a federally insured program.

Types of Reverse Mortgages

• Loans offered by some states and local governments are often for specific purposes, such as paying for home repairs or property taxes. These are the lowest cost reverse mortgages.
• Loans offered by some banks and mortgage companies can be used for any purpose.

Costs for Reverse Mortgages

The costs for loans from banks and mortgage companies usually include the following:

• Application fee
• Insurance
• Origination fee
• Monthly service fee
• Closing costs
• Interest

These costs are usually added to the loan balance (what you owe).

HECM loans are almost always the least expensive reverse mortgage you can get from a bank or mortgage company, and in many cases are significantly less costly than other reverse mortgages.

Reverse mortgages are most expensive in the early years of the loan and generally become less costly over time.

Before getting a reverse mortgage other than a government or HECM loan, carefully consider how much more it will cost you.

Counseling Is Required

The federal government requires you to see a federally-approved reverse mortgage counselor as part of getting a HECM reverse mortgage.