Reverse Mortgage Loans

A reverse mortgage is a type of home equity loan that allows you to convert some of the existing equity in your home into cash while you retain ownership of the property. Equity is the current cash value of a home minus the current loan balance.

A reverse mortgage works much like a traditional mortgage, except in reverse. Instead of the homeowner paying the lender each month, the lender pays the homeowner. As long as the homeowner continues to live in the home and complies with all other loan terms, no repayment of principal, interest, or servicing fees are required. The funds received from a reverse mortgage may be used for anything, including housing expenses, taxes, insurance, fuel or maintenance costs.

To qualify for a reverse mortgage, you must own your home. You may choose to receive the reverse mortgage funds in a lump sum, monthly advances, as a line-of-credit, or a combination of the three, depending on the reverse mortgage type and the lender. The amount of money you are eligible to borrow depends on the age of the youngest borrower or eligible non-borrowing spouse, the lesser of the appraised value, HECM lending limit, or sales price and the interest rate set by the lender.

Because the borrower retains ownership of the home with a reverse mortgage, the borrower also continues to be responsible for taxes, repairs and maintenance.

Depending on the plan selected, a reverse mortgage is due with interest either when the homeowner permanently moves, sells the home, dies, or the end of a pre-selected loan term is reached. The loan may also be called due and payable if the borrower fails to comply with the terms of the loan. If the homeowner dies, the lender does not take immediate ownership of the home. Instead, the heirs must pay off the loan, typically by refinancing the loan into a forward mortgage (if the heirs meet eligibility requirements), by using the proceeds generated by the sale of the home, or by using other assets.

These materials are not from HUD or FHA and were not approved by HUD or a government agency.