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Reverse Mortgage

Purpose

To cost-effectively turn the equity in your home into cash without having to sell or pay out-of-pocket interest monthly on borrowed equity. A reverse mortgage is not an insurance product.

How it works

A reverse mortgage is a loan on the equity of your house, but you don't have to pay it back until you sell your home, move out permanently, or die. Proceeds from a reverse mortgage can be in the form of a lump sum, a monthly cash advance, a credit line or a combination of those options. You usually must be 62 years old to qualify. You retain ownership of the home, and the reverse mortgage fees and interest are added to the loan balance. Homeowners never need to repay more than the home's market value. Homeowners or their heirs keep leftover equity when a reverse mortgage terminates.

Who needs it

Homeowners who need cash but do not want to sell their home to get it.

Who may not need it

People who can turn other assets into cash or a cash stream for less money in the long run than a reverse mortgage. People who can take advantage of local or state government programs such as deferred payment or property tax deferral loans. Proprietary reverse mortgages offered by private companies may provide higher loan amounts than a home equity conversion mortgage, the only reverse mortgage program insured by the Federal Housing Administration. Public welfare programs can provide cash or cash-equivalents.

When to buy it

The older you are at time of purchase, the higher your monthly payment is likely to be. Some advisers urge clients to use money from a reverse mortgage to purchase insurance products, such as permanent life or long-term-care.

How you pay for it

Costs are deducted from the amount of cash the reverse mortgage produces.


Terms to Know

  • Non-Recourse Mortgage  (View Definition )