What is a reverse mortgage?

 The Federal government's Federal Housing Administration (FHA) created this program in 1987 as tool to help seniors stay in their homes.  Reverse mortgages are a way for older homeowners to convert the equity in their homes into cash without ever having to make monthly payments, sell or move.  

Here are the basics:

 All homeowners have to be 62 years old or older.

  • Homeowners can choose to receive money either on a monthly basis, in a lump sum or as a line of credit. 
  • No income or minimum FICO scores are required.
  • Generally repayment of this money is not required*.
  •  Social Security and Medicare benefits are not affected*.
  • When the last home owner dies or permanently leaves the home, the lender recovers the initial loan amount, plus interest.
  • When the loan is paid in full, any equity left over will be distributed to your heirs.

  * consult your tax advisor for your specific situation.

A reverse mortgage 

is a home loan that lets homeowners convert a portion of the equity in their homes into cash.  The equity that they have built up over years of mortgage payments can now be paid back to the homeowners in cash.  Unlike a traditional mortgage or a second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence or fail to pay the property taxes or homeowners insurance.  Most people, who have reverse mortgages, stay in their homes without ever having to make another house payment until the last one of them dies.

To be eligible 

for a reverse mortgage, HUD's Federal Housing Administration (FHA) requires that all homeowners are at least 62 years of age or older.  The home can either be owned outright or it can have a mortgage with a balance low enough that it can be paid off at the closing with proceeds from the reverse mortgage.  The homeowners all must live in the home as their primary residence.  Most home types will qualify including single famiy residences, townhomes, condominums and manufactured homes.

The amount you can borrow 

depends on your age, current loan balance, interest rates and the appraised value of your home or FHA's mortgage limits for your area (whichever is less).  Generally, the more valuable your home is, the older you are and the lower the interest rate the more you can borrow.

Learn More About Reverse Mortgages

 The Lastest from Our Blog

Amid Squeeze on Home Equity, A Revival for Reverse Mortgages

01/27/12 at 01:25 PM

Converting home equity into cash has been a challenge for homeowners since the real-estate downturn, but a growing number of lenders are quietly reviving a loan for seniors that does just that: the reverse mortgage.

Written by: ANNAMARIA ANDRIOTIS

View All