Reverse mortgages (sometimes called “home equity conversion loans”) enable older homeowners to benefit from their equity without having to sell their home. You can choose to receive these funds in a monthly payment, a line of credit, or a lump sum.
The amount of loan funds you may receive depends on the value of the home and the age of the youngest borrower or eligible non-borrowing spouse.
The loan does not have to be repaid until the borrower sells his home, moves out, or passes away. You or your estate representative is obligated to pay back the reverse mortgage amount, interest accrued, and finance fees at the time your home is sold, or you are no longer living in it.
Reverse mortgages are typically appropriate for borrowers who are at least 62, have a small or zero balance owed against their home, and use the property as their main living place.
Homeowners who are on a fixed income and find themselves needing additional money find reverse mortgages ideal for their situation. Social Security and Medicare benefits aren’t affected, and the funds are not taxable. Reverse mortgages can have adjustable or fixed rates. You cannot lose your home under normal circumstances, but it is important to understand that foreclosure may occur if you do not pay your taxes and/or insurance and otherwise comply with the terms of the loan. You are also responsible for home maintenance.
1. At the conclusion of the term of the reverse mortgage loan contract, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to the person and the person may need to sell or transfer the property to repay the proceeds of the reverse mortgage from the proceeds of the sale or transfer or the person must otherwise repay the reverse mortgage with interest from the person’s other assets.
2. The lender will charge an origination fee, a mortgage insurance premium, closing costs or servicing fees for the reverse mortgage, all or any of which the lender will add to the balance of the reverse mortgage loan.
3. The balance of the reverse mortgage loan grows over time and the lender charges interest on the outstanding loan balance.
4. The person retains title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts may cause the reverse mortgage loan to become due immediately and may subject the property to a tax lien or other encumbrance or to possible foreclosure.
5. Interest on a reverse mortgage is not deductible from the person’s income tax return until the person repays all or part of the reverse mortgage loan.