What is a Reverse Mortgage

An Effective Financial Tool

A reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), is a loan that allows you to take a portion of the equity in your home to first pay off your existing mortgage (if you have one) and then use the remaining proceeds however you like. You are still responsible for paying property taxes, homeowners insurance, and home maintenance costs.

How a Reverse Mortgage Works

  • You remain the owner of the home.
  • You can sell the home or pay off the loan with no prepayment penalty
  • You can make payments if you like; however, no monthly mortgage payments are required.
  • You can receive the money in a lump sum, monthly payments, a line of credit, or any combination of the three.
  • You have protection against declining home values because it is a non-recourse loan. That means you will not owe more than the value of your home. If your home sells for less than what is owed, FHA insurance pays the difference.

A reverse mortgage works the same way as a traditional mortgage, except:

  • If you decide not to make a monthly mortgage payment,┬áinterest for that month will be added to the loan balance and reduce the equity in your property.
  • If you decide not to make a monthly mortgage payment, the amount you would have paid in interest is added to the amount that will come due when you leave the home or pass away.
  • If you vacate your home or if the home is no longer your principal residence, the loan will become due and payable.

You can find out how much you may qualify for by using our reverse mortgage calculator.

Who Is Eligible?

  • You must own a home. The home can be paid off or have an existing mortgage.
  • At least one homeowner must be 62 or older.
  • You must be able to meet the financial obligations of the loan.

Eligibility Fact: The home can be paid off or have an existing mortgage.

Why get a Reverse Mortgage?

There are a variety of reasons why people get this type of loan. Some get it to fulfill an immediate need, while others use it to plan for the future. Here are two examples of how you can use a reverse mortgage.

Planning for Now:

Jim and Sue needed to update many features of their home and make it more suitable for their physical needs, so they got a reverse mortgage. The loan first paid off their existing mortgage, giving them more money to live on each month while they continued to pay their property taxes and homeowners insurance. With their remaining proceeds, they were able to purchase a new furnace and add a wheelchair ramp to their home. They even had some money left over to pay some medical bills and save for an emergency.

Planning for the Future:

Mark is 62 and planning to retire within the next year. His home is paid off, he has some investments that are doing well, and he believes he has enough saved for retirement. However, he would like to feel even more financially secure before he decides to leave his career. So, he adds a reverse mortgage line of credit to his retirement plan. Mark withdraws some of his proceeds to live off while he delays taking social security. This strategic move will give him access to larger monthly payments when he finally does begin to withdraw from social security. He keeps the remaining reverse mortgage proceeds in the line of credit. The money is there for him if he needs it for any unexpected cost, and while it remains unused, it continues to grow in value.