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A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. In other words, the house is paying you back the cash that you put into it, plus any appreciation. These payments can come as a lump sum, a monthly payment or both. Of course, there are limitations on how much can be borrowed and the payouts (see below) but unlike any type of HELOC, you never make any payments on the loan amount.   Ultimately, a reverse mortgage is a retirement tool that is becoming more common in the US as home prices rise and seniors are looking for alternatives to moving and/or supplementing other fixed incomes..

What is a reverse mortgage? ​

Qualifying factors:

  • Minimum age 62+
  • Equity in the home
  • Must be owner-occupied

Homes eligible for a reverse mortgage:  

  • single-family homes, FHA approved condos, townhouses, and two-to-four unit properties

Pro's of a Reverse Mortgage

  • Allows the owner to stay in the home
  • It pays off any existing debt on the house
  • Easy qualifying with no minimum credit score and generally no income requirements.
  • No monthly mortgage payments
  • There are payout options and flexible terms
  • The payout is indefinite until the borrower(s) passes away or moves.
  • The value never gets to a negative position
  • Heirs can inherit the house and the equity (if some remains)

Pro's and Con's of a Reverse Mortgage

How does a Reverse Mortgage work?

Reverse Mortgages

Factors in determining the Loan Amount

  • Age (or the age of the youngest spouse in the case of couples).
  • Value of home.
  • Interest rate.
  • Lesser of appraised value or the HECM FHA mortgage limit of $625,500.
  • Minus any existing liens to be paid off.

Am I qualified for a Reverse Mortgage?​

A Reverse Mortgage offers the borrower a choice of a lump sum payout, a monthly payment or a combination of both. Since the payments are made from the equity, there is no monthly payment; however, the borrower is still responsible for the property taxes and hazard insurance payments. As long as you live in the home, you can never owe more than the value of your home, regardless of how much you borrow. In addition, if the balance is less than the value of your home at the time of repayment, you or your heirs keep the difference.

How is the payout calculated?

Con's of a Reverse Mortgage

  • The fees are higher than a conventional loan.
  • The balance of the loan gets higher over time
  • Eligibility for Medicaid or other state or federal programs can be affected