A reverse mortgage is a home loan that allows you to borrow money against the value of your home. Here's all you need to know about reverse mortgages.
How Does a Reverse Mortgage Work?
A reverse mortgage lets you convert some of the money (or equity) in your home into cash. This means you receive payments from your lender for as long as you live in your home. There may be restrictions on how you use the money depending on the type of reverse mortgage you choose to take out. Home Equity Conversion Mortgages (HECMs) are the most common type of reverse mortgage. These loans are insured by the federal government and can be used for any purpose.
The money you receive from a reverse mortgage is usually tax-free and generally won't affect your Social Security or Medicare benefits. You can choose from a range of payment options, including:
- A lump sum at mortgage closing
- A line of credit that you can draw against as needed until the credit is exhausted
- A combination of the above options
You'll be charged interest on the money you receive, but you won't have to make loan repayments while you're living in your home. You must repay your loan in full when you pass away or decide to sell or move out of your home. This usually means selling your home to pay off your loan. Any remaining equity belongs to you or your heirs.
When Might I Consider a Reverse Mortgage?
You might consider taking out a reverse mortgage to:
- Pay off your current mortgage
- Supplement your Social Security benefits
- Meet unexpected healthcare expenses
- Make home repairs and improvements
You can also use a reverse mortgage to buy a new primary residence if you're able to pay the difference between your reverse mortgage proceeds and the sales price and closing costs for the home you're buying.
Am I Eligible for a Reverse Mortgage?
You may be eligible for a reverse mortgage if you meet the following requirements.
- You're aged 62 years or older.
- You own your home outright or have a mortgage balance you can pay off at closing with the proceeds from your reverse mortgage.
- You live in the home in question and have enough money to pay ongoing property charges and maintenance expenses.
Obtaining a reverse mortgage is easier than you might think. By taking a few simple steps, you can release the equity in your home and enjoy greater financial security.