Senior Citizen's Guide digital books
Senior Citizen's Guide

Reverse Mortgages
What is a Reverse Mortgage? Is it right for me?

A reverse
does not
affect regular
Social Security
or Medicare
A reverse mortgage is a unique loan that enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is "reversed." Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.

Eligible property types include single-family homes, manufactured homes built after June 1976, qualified condominiums, and townhouses. The funds from a reverse mortgage can be used for anything: daily living expenses; home repairs or modifications; health care expenses, including prescription drugs or in-home care; to pay-off of existing debts; for lifestyle enhancement; prevention of foreclosure; and other needs. There are no income or medical requirements to qualify. You may be eligible for a reverse mortgage even if you still owe money on a first or second mortgage.

What are my payment options?

You can choose how to receive the money from a reverse mortgage. The options are: all at once (lump sum); fixed monthly payments (for up to life); a line of credit; or a combination of these. The most popular option – chosen by more than 60 percent of borrowers – is the line of credit, which allows you to draw on the loan proceeds at any time.

The amount of money you get from a reverse mortgage depends on several factors, including: your age, type of reverse mortgage selected, appraised home value, current interest rates, and – sometimes – where you live. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you get.
The funds from a reverse mortgage are tax-free; it's your money, not additional income. A reverse mortgage does not affect regular Social Security or Medicare benefits. To assess the impact, if any, on other federal or state assistance or medical programs, you may wish to consult with your local Area Agency on Aging, a reverse mortgage lender, or a tax attorney.

Mandatory Counseling

Before applying for a reverse mortgage, you must first meet with a counselor. A list of approved counseling agencies nationwide is posted online by the U.S. Department of Housing and Urban Development. Or, you can schedule a counseling session with an AARP-approved telephone counselor at 1-800-209-8085. The counselor's job is to educate you about reverse mortgages, to inform you of other alternative options available to you given your situation, and to assist you in determining which particular reverse mortgage product best fits your needs.

Paying Back Your Loan

No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home, or permanently move out. The amount owed can never exceed the value of your home. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.

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