Reverse Mortgages

What is a Reverse Mortgage?

A reverse mortgage is a financial product available to homeowners who are typically aged 62 or older and allows them to convert a portion of their home equity into cash. Unlike a traditional mortgage where the homeowner makes monthly payments to the lender, with a reverse mortgage, the lender makes payments to the homeowner.

Key features of a reverse mortgage:

Home Equity Conversion: Homeowners can access a portion of their home equity, turning it into tax-free income without selling the property. The amount that can be borrowed is based on factors such as the homeowner's age, the home's value, and current interest rates.

No Monthly Mortgage Payments: Unlike a traditional mortgage, the homeowner is not required to make monthly payments. Instead, the loan balance increases over time as interest and fees accrue. The loan is typically repaid when the homeowner moves out of the home, sells the property, or passes away.

Loan Repayment: Repayment of the reverse mortgage occurs when the homeowner no longer uses the home as their primary residence. The repayment amount usually includes the loan principal plus accrued interest and fees. If the home is sold, the proceeds go towards repaying the loan; any remaining equity goes to the homeowner or their heirs.

Types of Reverse Mortgages: There are different types of reverse mortgages, including Home Equity Conversion Mortgages (HECMs), which are federally insured and regulated by the U.S. Department of Housing and Urban Development (HUD), and proprietary reverse mortgages offered by private lenders.