What Is A Reverse Mortgage?
A reverse mortgage is a home loan available to homeowners age 62 or older that allows them to convert a portion of their home equity into cash. Unlike a traditional mortgage, borrowers are not required to make monthly mortgage payments as long as they continue to live in the home as their primary residence and meet the loan requirements.
Reverse mortgages are commonly used by seniors to supplement retirement income, reduce monthly expenses, or help cover costs such as medical bills, home repairs, or long-term care. The loan is repaid later, typically when the borrower sells the home, permanently moves out, or passes away.
In this guide, we explain what a reverse mortgage is, how it works, key features to understand, and what the application process looks like so you can decide whether this financial option may be right for your situation.
When you are ready, we encourage you to use our reverse mortgage calculator to receive an estimate of your eligibility and how much you may be able to borrow based on your age, home value, and other factors.
All About Reverse Mortgages
A reverse mortgage is a type of home loan that allows homeowners age 62 or older to access a portion of their home equity without having to immediately sell their home or make monthly mortgage payments. Instead of paying the lender each month, the lender pays the borrower, either as a lump sum, monthly payments, or a line of credit, depending on the borrower’s preferences and loan structure.
The loan balance increases over time as funds are received, and repayment is typically required only when the borrower sells the home, permanently moves out, passes away, or no longer meets the loan requirements.
How Does A Reverse Mortgage Work?
When you apply for a reverse mortgage, the lender evaluates several factors, including your age, your home’s value, and your overall financial situation, to determine how much you may be eligible to borrow. The available loan amount is based on the equity in your home and current interest rates.
Once the loan is in place, you may continue living in your home as long as it remains your primary residence and you meet your loan obligations, such as paying property taxes, homeowner’s insurance, and maintaining the home. As funds are accessed, the loan balance grows over time, and repayment is required only when a qualifying event occurs.
Potential Advantages Of Using A Reverse Mortgage
Like any financial product, a reverse mortgage has both benefits and considerations. For some homeowners, it can be a helpful tool for funding retirement and managing life’s expenses.
Common features and potential advantages include:
- Tax-free funds: The money received from a reverse mortgage is generally not considered taxable income. Consult a tax professional for guidance specific to your situation.
- Flexible payment options: Funds may be received as a lump sum, monthly payments, or a line of credit, depending on the loan type and program.
- No required monthly mortgage payments: Borrowers are not required to make monthly mortgage payments as long as loan obligations are met.
- Continued home ownership: Borrowers retain ownership of the home and may continue living in it while meeting loan requirements.
As with any mortgage, borrowers must stay current on property taxes, insurance, and home maintenance. You can review detailed reverse mortgage eligibility requirements to better understand ongoing obligations.
How To Apply For A Reverse Mortgage
To apply for a reverse mortgage, borrowers must meet certain eligibility criteria, including being at least 62 years old and having sufficient equity in their home. The general application process includes the following steps:
- Research lenders: Choose a lender that specializes in reverse mortgages and has experience working with senior homeowners.
- HUD-approved counseling: Before a loan can proceed, borrowers must complete counseling with a HUD-approved counselor to review loan terms and responsibilities.
- Application: After counseling, the lender reviews financial information, home value, and age to determine loan eligibility.
- Closing: If approved, borrowers attend closing, sign loan documents, and receive access to funds.
Next Steps
In summary, a reverse mortgage can help older homeowners access home equity without immediately selling their home or making monthly mortgage payments. It offers flexibility, potential tax advantages, and the ability to remain in the home while meeting loan obligations.
However, reverse mortgages also involve fees and long-term considerations. It is important to carefully evaluate your financial goals, future plans, and responsibilities before moving forward. Speaking with a HUD-approved counselor and working with a reputable reverse mortgage lender can help you determine whether this option is right for you.