Reverse Mortgages: Understanding the Basics

What makes it a “reverse” mortgage?

A reverse mortgage is exactly what its name implies – a loan whose features make it essentially the reverse of a traditional “forward” mortgage.  Instead of making monthly payments, you can choose to receive them.  That’s the “reverse” part of a reverse mortgage.  Instead of turning your income into equity, you turn your equity into income.  That last feature – the ability to turn your equity into income – is what most distinguishes a reverse mortgage from other loans, and it’s what makes it so valuable to many senior homeowners.  Having spent years repaying the mortgage that allowed you to buy your home, you can now tap into that investment to help you achieve your goals later in life.  However you plan to use your equity – whether traveling, paying medical expenses, improving your home or just adding a bit of cushion to your monthly budget – you’ll have a golden opportunity to put your nest egg to good use.

What happens to my home?

Nothing happens to your home – you remain the owner for as long as you live there and you cannot be forced to move.  Unlike traditional mortgages, your balance cannot exceed the value of your home when you sell it.  So no matter how much money you receive through your reverse mortgage, you cannot owe more than your home is worth.  Having that assurance is important.  After all, you’ve put a lot of money into your home and you should have control over how to take it out.

Who is eligible?

To be eligible for a reverse mortgage, all owners listed on the home’s title must be at least 62 years of age and occupy the home as their principal residence for the majority of the year.  The property must be a single family or a two to four unit dwelling.  Town homes, detached homes, condominium units and some manufactured homes are eligible.  Speaking with an approved reverse mortgage counselor is another important eligibility requirement.  The Department of Housing and Urban Development (HUD) supervises counseling agencies that can work with you in person, or more commonly, over the phone.

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