What Is a Reverse Mortgage?

A reverse mortgage is a loan that homeowners aged 62 and over may take out to convert their home’s equity into cash. The amount available is determined by the amount of equity in the home and the applicant’s age. The funds can be delivered in monthly payments, a lump sum, a line of credit, or a combination of these methods. You aren’t required to pay the loan back unless you move or sell the property.

What Kind of Reverse Mortgages Are Available?

HECM is HUD’s term for a reverse mortgage. HECMs comprise about ninety percent of the reverse mortgages provided in the United States. Regardless of the lender you use, HUD’s fee limitations, disclosure requirements, and mandatory counseling make sure that you understand your reverse mortgage and that its terms are fair.

Fannie Mae’s HomeKeeper reverse mortgage program, which offered the advantage of no mortgage insurance requirement, was discontinued on December 31, 2008.

Jumbo reverse mortgages are available from private lenders and carry varying terms (they are not regulated by HUD).

Do I Qualify for a Reverse Mortgage?

In order to qualify, you and any co-owner of the property must be 62 years of age or older. You can’t owe too much on the home–the loan proceeds are used first to pay off any balances secured by the property; then you get what’s left. There is no credit qualifying with reverse mortgages, because you won’t be making any payments. This is the loan that pays you.

Can I Lose My Home with a Reverse Mortgage?

No. You don’t have to repay the loan until you sell the home or quit living in it, and you will never owe more on the loan than the value of the home. You are required to keep up the property, however, and pay the property taxes. Failure to do so could result in the loan being called in.

How Big a Reverse Mortgage Can I Get?

The amount available to you through a HUD-approved reverse mortgage depends on your age and the amount of equity in your home (its value minus any loans against it). In 2009, the maximum amount is $625,000. Jumbo reverse mortgages offer higher loan limits for those with more expensive properties.

How Is the Money Paid Out?

First, the proceeds are applied to any debt remaining on the original mortgage and the loan’s closing costs. The rest is up to you–take the money in a lump sum, choose monthly payments, or opt for a line of credit, paying interest only on the amount you use.

Is a Reverse Mortgage Right for Everyone?

If you’re planning a two-year world cruise or anticipate moving fairly soon, an HECM is not for you. The longer you stay in your home, the cheaper the financing ends up being. And if you only need a small amount, like $10,000 to fix a porch, a home equity loan is probably a cheaper way to get financing. But a study by AARP found that about 90% of seniors who took out HECMs were glad they did. See if you might be one of them–find reverse mortgage lenders offering HECM products.

How can I grow or maintain the value of my home while having a reverse mortgage?

Homeowners can retain the value of their property as well as create curb appeal for re-sales and appraisals by upgrading or maintaining elements of their home such as their landscaping. Finding the right lawn care service can make a huge difference in protecting your investment.