Reverse Mortgages: What You Need to Know

A reverse mortgage provides an opportunity for homeowners who are 62 years and older to receive money from a lender based on their home equity and cease monthly mortgage payments. The loan is based on factors including age, amount of equity in the home, and the home’s appraised value.

A significant advantage of reverse mortgages is that the borrower does not need to meet specific credit or income qualifications, which is a major benefit for seniors who are not working and living on a fixed income. It is a way for homeowners to obtain much-needed supplemental income to maintain their quality of life through their retirement years and without the headache of a monthly mortgage payment.

How much will you receive?

The amount of money you receive through a reverse mortgage varies. Typically, the older the age of the borrower, the more money received. The mortgage works by first paying off the existing balance of your traditional mortgage, therefore, the higher equity your home has, the more money you will receive.

After receiving the reverse mortgage, if the time comes when you want to sell your home, you must first pay off the reverse mortgage amount. Any remaining proceeds you will keep.

In the case of borrower death, the home will be passed on to heirs and they will have the choice to refinance through a standard mortgage, sell or pay-off the reverse mortgage. Because the value of the home decreases through a reverse mortgage, there is a risk that the home value will drop below the reverse mortgage amount. In this case, the bank absorbs the remaining costs.

Other important notes regarding the reverse mortgage include:

• •Money from a reverse mortgage is received through a lump sum, monthly payment, as a credit line, or any combination of these options.
• •Debt with a reverse mortgage is a combination of all of the money you receive plus interest.
• •Fees associated with a reverse mortgage can be financed with money you receive from the loan. Property taxes and home insurance continue to be a responsibility of the homeowner.
• •The balance of the reverse mortgage is due when the final surviving holder of the mortgage moves out of the home, sells the home, or dies.
• •The balance of the reverse mortgage is also due if the homeowner rents a part of the home, goes through bankruptcy, leaves the home, commits fraud or if the home is condemned.

Learn more about the qualifications for a reverse mortgage.