What is a Reverse Mortgage?

You’ve seen commercials with beloved Hollywood actors talking about reverse mortgages – but what exactly is a reverse mortgage? At a high-level, reverse mortgages are loans available to homeowners age 62 and older that allow them to borrow money based on the value of their homes. It is different than other loans since borrowers do not have to pay the debt back right away. To help you better understand reverse mortgages, we’ve answered some of the most frequently asked questions (FAQs) below.

Reserve Mortgage FAQs

Who is in the best position to get a reverse mortgage?

Those in the best position to get a reverse mortgage are those that do not plan to move, can afford the cost of maintaining their home, and want to access the equity in their home to supplement their income or have money available for a rainy day.

How does it work?

With a reverse mortgage, the bank makes payments to the borrower based on a percentage of accumulated home equity.

When does it need to be repaid?

The reverse mortgage needs to be paid when the borrower dies, sells the home, or permanently moves out.

Who is eligible?

Seniors age 62 and older who own homes outright or have small mortgages are eligible for a reverse mortgage.

How can the money be used?

Money received from a reverse mortgage can be used for any reason. Retirees typically use cash to supplement income, pay for health care expenses, pay off debt, or finance home improvement jobs.

Where does the reverse mortgage come from?

While the government doesn’t provide the reverse mortgage loans, the Federal Housing Authority (FHA) oversees the Home Equity Conversion Mortgage (HECM) program. The FHA insures reverse mortgages so that lenders can recoup their entire investment, even if the home’s sale value is less than the balance of the loan.

How can you receive the reverse mortgage loan?

Reverse mortgages can be received in any combination of the following options:

  • Line of credit– draw as needed up to the maximum eligible amount
  • Lump sum– a lump sum of cash at closing (only available on fixed-rate loans)
  • Tenure– monthly payments for the life of the loan
  • Term– monthly payments for a specific number of years

Speak with a financial advisor today to determine if a reverse mortgage is the best option for you.