A reverse mortgage is a loan that pays you money from the equity in your house. When you borrow money to buy a house with a traditional mortgage, you make monthly payments to the lender. As you pay down the amount owed on the loan, you increase your equity in the house.
With a reverse mortgage, you don’t make monthly mortgage payments. Instead, you receive money from the lender. You are borrowing cash from the equity in your home. The lender adds interest and fees to the cash you receive, increasing the amount you owe on the mortgage.
When you no longer live in your home, you or your heirs must pay the mortgage in full. This usually means selling the home to pay off the reverse mortgage.
A reverse mortgage can be a way for seniors to have access to cash from the equity in their home to meet living expenses in retirement, but it is not the right answer for everyone.
The most common type of reverse mortgage is the Home Equity Conversion Mortgage. It is insured by the Federal Housing Administration, a program of the Department of Housing and Urban Development (HUD).
To obtain a reverse mortgage, you must meet certain qualifications:
- You must be at least 62 years old.
- Your home must be your principal residence.
- You must own your home or have a low mortgage balance. You may not qualify if you still owe a good bit of money on your regular mortgage.
Finally, you must meet with a HUD approved counselor to discuss your eligibility and to be sure you understand the consequences of a reverse mortgage. To locate a HUD approved counselor in your area, call 800-569-4287.
The counselor will talk with you about your financial needs and how a reverse mortgage will affect your spouse, partner or other family members who live with you. The counselor can also discuss alternatives to a reverse mortgage that may be more appropriate for your circumstances.