REVERSE MORTGAGE

For people over the age of 62

If you need money to cover healthcare expenses, pay off your mortgage, or add to your income, you should consider a reverse mortgage — a type of loan secured by your home. It allows you to keep your home but convert part of the equity into cash. When borrowing against your equity, you get access to cash to freely pay for increasing cost-of-living expenses or unexpected costs.

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Overview

Think of a reverse mortgage as a conventional mortgage where the roles are switched. In a conventional mortgage, a person takes out a loan to buy a home and then repays the lender over time. In a reverse mortgage, there is no monthly repayment structure. You are only required to repay the loan when you sell or refinance. Because there are no monthly installments on the interest accrued, the interest is compounded onto the balance of the existing mortgage and when you sell or refinance, the mortgage balance and interest are all due.

Most reverse mortgage loans are not repaid by the borrower. Instead, when the borrower moves or passes away, the borrower’s heirs sell the property in order to pay off the loan. The borrower (or their estate) gets any excess proceeds from the sale.

Reverse Mortgage Eligibility

To qualify for a government-sponsored reverse mortgage, the youngest owner of a home being mortgaged must be at least 62 years old. Borrowers can only borrow against their primary residence and must also either own their property outright or have at least 50% equity with, at most, one primary lien—in other words, borrowers can’t have a second lien from something like a HELOC or a second mortgage. If the borrower doesn’t own their house outright, they usually have to pay off their existing mortgage with the funds received from a reverse mortgage.

Pros and Cons of a Reverse Mortgage:

Pros:

You continue to live in your home and retain the title to your home as long as you continue to pay your property taxes, insurance, and maintenance.
You generally receive the proceeds of the loan tax-free cash in which you can use the money as you choose.
You no longer make monthly payments on a mortgage during the course of the loan, though you do have to follow the constructs of the loan guidelines.
A reverse mortgage is a non-recourse loan meaning neither you or your heirs are liable for any amount of the mortgage that exceeds the value of your loan.
You choose the disbursement options. You do not have to take the amount all at once.

Cons:

If you can’t keep up with basic home maintenance, property taxes, or insurance, your lender can call for your loan to be due and payable in full.
The balance of the loan increases over time as does the interest on the loan and associated fees.