What is a Reverse Mortgage?
A reverse mortgage, also known as a home equity conversion mortgage, is similar to a traditional mortgage in the following ways:
- You borrow money based on the equity in your home.
- You remain the owner of your home. But do not forget, like all homeownership, you are still responsible for paying property taxes, homeowners insurance and maintaining the home.
- You can sell the home or pay off the loan early with no prepayment penalty.
However, this loan comes with a few unique features:
- You can make payments if you like. However, no monthly mortgage payments are required.*
- The amount of funds available to you in the line of credit option may increase over time.
- You have the ability to receive money in a lump sum, monthly disbursements, or use the line of credit and withdraw money when you want or need it.
- You have protection against declining home values because it is a non-recourse loan, meaning you never owe more than the value of your home.
Who Is Eligible?
- You must own a home.
- At least one homeowner must be 62 or older.
- You must be able to meet your financial obligations.
Eligibility Fact: The home can be paid off or have an existing mortgage.
Why Use a Home Equity Conversion 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.
Planning for Now:
- Increase monthly cash flow by eliminating your monthly mortgage payment*
- Consolidate debt
- Make home improvements
- Pay for healthcare and medical expenses
- Have the ability to do more during retirement
- Make a substantial purchase (like a vacation home, car, etc.)
Planning for the Future:
- Use the money received to live on now so other investments can be used later, once they have more time to grow and the payouts are higher
- Have funds in place for future or unexpected expenses
- Have access funds available in your line of credit when you need them, regardless of changes in your home’s value
How Does It Work?
A reverse mortgage works the same way as a traditional mortgage, except:
- If you decide not to make a monthly mortgage payment,* interest for that month will be added to the loan balance and “negative amortization” will occur. Negative amortization will increase the amount that you owe and reduce your equity in the property.
- If you vacate your home or if the home is no longer you principal residence, the loan will become due and payable.
- You will not be responsible for any amount over the amount the home is worth.
* Homeowner is responsible for property taxes, homeowners insurance and maintenance of your property.