Reverse Mortgage

A reverse mortgage allows homeowners age 62 and older to convert the equity in their home into cash, without having to sell their homes or make additional monthly payments. 

Reverse mortgages are intended for seniors to supplement their income, pay healthcare expenses, or use the funds any way they wish.

The funds from a reverse mortgage can be distributed in three different payment options: one lump sum, monthly payments, or a line of credit. Optionally, a homeowner can receive a combination of monthly payments and a line of credit. With the line of credit, you will owe interest on the funds that you use, like any home equity line or credit card.

The amount of money you can take is based on the value of your home, your age, and your interest rate. You can take up to 60 percent of that money during the first year of the reverse mortgage loan.

Most reverse mortgages are backed by the Federal Housing Administration (FHA); therefore, borrowers do not have to pay back the money for as long as they live in the home, sell their home, or die. Property taxes and insurance still must be paid on the loan, and the home must be maintained. Failure to do so will cause the loan to become due immediately.

When borrowers pay back the loan by selling their home, any leftover money will go to the borrowers or their heirs.

Reverse mortgages can use up the equity in your home and come with higher interest rates. It is important to review the different types of reverse mortgages before you decide on the best option for you. You should consider:

How to use the money. Would you need the money as extra income every month, or would you need it for a one-time expense? You may be able to take advantage of a better solution, like a personal loan or home equity loan.

If you plan to leave your home to your heirs. A reverse mortgage may risk the home you want to leave to your heirs. This means that when you pass, your heirs must pay back the loan or sell your home.

Where your partner will live if you pass first. Make sure to have your partner sign as a co-borrower on the reverse mortgage. This will ensure your partner can continue living in the home even after you die. Your partner will be able to live in the home until he or she passes.