Reverse Mortgages – The Basics

Reverse Mortgages – What are they?

A reverse mortgage is a type of home equity loan that enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell their home, give up title, or take on a new monthly mortgage payment.   The reverse mortgage is seen as an important retirement consideration for many people.

The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.  These payments can be a supplement to Social Security for people after the age of retirement.

With a Reverse Mortgage you may continue to receive income, and defer repayment, for as long as you live at home – no matter how long that may be.

All Reverse Mortgages are non-recourse loans, which means there is no personal liability to you or your heirs – no matter what.  Reverse Mortgage lenders can only look to your home’s value for repayment (both Homeowner and Lender are insured against loss).

With a Reverse Mortgage, you can never be forced from your home and the Reverse Mortgage does not have to be repaid until after you permanently vacate your home, at which time the loan is paid off by the sale of the property.  Any leftover equity belongs to the homeowner or the heirs.  Reverse mortgages are seen by many to be the best way to maximize your lifetime investment in your home.

However, reverse mortgages also tend to be more costly than other loans, and there have been cases of abuse by unscrupulous lenders. If you are considering a reverse mortgage, it is important to understand how the loans work and what your rights and responsibilities are.

Reverse Mortgages – Why to Consider One

A reverse mortgage’s income can be used for any purpose.  Examples of potential uses of funds include:

  • Supplement retirement income
  • Pay daily living expenses
  • Cover health care costs or long-term care insurance
  • Make home improvements
  • Pay off an existing mortgage
  • Pay property taxes
  • Invest in CDs or annuities
  • Many others…

You also have complete flexibility as to how you receive funds, i.e. all up front or spread out over time.

 Key Point - There are no restrictions   on hoy you can use your loan proceeds