Reverse Mortgage Basics

123RF_8483173_l_SeniorCoupleBeach ADJA reverse mortgage is a loan that allows homeowners over the age of 62 to access the equity they’ve built in their home. You receive loan proceeds to use as you wish, while still living in and owning your home. Unlike other mortgage options, such as a home equity loan, there are no “balloon” features, you do not need to make monthly payments, and the loan will stay in place as long as at least one borrower lives in the home.

Maintaining home ownership
One of the advantages of a reverse mortgage is that it allows homeowners to continue to own and live in their home even if one co-borrower passes away. If you currently have a mortgage or line of credit on their home, you still qualify.

Reverse Mortgage borrowers do not need to make monthly mortgage payments. You must pay property taxes and required insurance, and keep your home in average condition. You can use your reverse mortgage to cover these routine expenses.

The loan does not have to be repaid until the last borrower permanently leaves or sells the home. If the house is sold, the loan is repaid along with any accrued interest. The borrowers or their heirs keep any remaining money. Since there is no prepayment penalty you can also choose to repay the loan at any time using other assets.

Using the money
Qualified homeowners can use the money from their reverse mortgage in a variety of ways. Helping to pay for healthcare or homecare, covering monthly living expenses, supplementing retirement income, purchasing a home, or setting up a line of credit for future use are common ways. The money is available as a lump sum, monthly income, line of credit or any combination of these. It’s tax-free and typically doesn’t affect Social Security or Medicare benefits. However, needs-based benefits, such as Medicaid and Supplemental Security income, may be impacted. Please be sure to consult with a tax and benefit professional to review any individual situation in detail. This is not tax or other advice.

To qualify for a reverse mortgage, you must:

  • Be Age 62 or older
  • Own your home (those with existing mortgages still qualify)
  • Live in your home
  • In addition, your home must meet minimum health and safety standards set forth by the U.S. Department of Housing and Urban Development (HUD).