What is a Reverse Mortgage?
With a Reverse Mortgage, more accurately now called a Home Equity Conversion Mortgage (HECM), homeowners age 62 or older receive a portion of their home’s equity while living in the home, and with no monthly mortgage payments. That’s because unlike the loans most of us are familiar with, where the borrower receives money and is obligated to begin paying back that money right away, money received through an HECM only has to be repaid after the final borrower no longer lives in the home.
To learn more, watch this short video.
First, no more monthly mortgage payments
If there is a mortgage on the home, the money from the HECM is first used to pay off that loan, eliminating monthly mortgage payments.
Plus added income
You then have the choice of taking the remaining equity in any of these ways:
- One-time, tax-free payment*
- Steady, tax-free monthly payments*
- Line of credit as a “safety net” for later use if needed
- A combination of these methods
The money you receive is yours to use, any way you want:
- Have more money on hand to meet everyday bills and expenses
- Eliminate or reduce credit card balances or other debts
- Help with healthcare expenses, making it easier to age in place
- Set aside funds to pay for future long-term care needs
- Make home updates, repairs or modifications to live more comfortably
- Lower taxable income by replacing taxable withdrawals from 401(k) or other retirement plans with tax-free reverse mortgage income*
- Establish a line of credit for emergencies or occasional expenses
- Help a child or grandchild with major expenses, like college tuition or a down payment on a home
- Or any other purpose
“Using a reverse mortgage to tap home equity is one of the most powerful options available to retirees today.” –Alicia Munnell Director, Center for Retirement Research at Boston College
You still own your home
A reverse mortgage does not mean giving up your home. You own your home, the title stays in your name, and neither the HECM nor your home can be taken from you as long as at least one borrower:
- Lives in the home as primary residence
- Continues to pay required property taxes and homeowners insurance
- Maintains the home according to Federal Housing Administration requirements
Your heirs can keep the home or sell it
When the home passes to heirs, the money for the HECM repayment most often comes from the sale of the home. Heirs also have the option, should they choose, to arrange their own financing, pay off the loan and keep the house.
And neither the borrower nor heirs can be put in the position of having to repay more than the home is worth. FHA insurance is a part of every HECM, and makes up any such shortfall should it occur.
More than a half million Americans have already made a reverse mortgage part of their financial plan, and according to a study, 94% of reverse mortgage borrowers enjoy improved peace of mind as a result of the loan.**
* Consult a financial advisor and appropriate government agencies for any effect on taxes or government benefits.
** Source: 2010 NRMLA study