The equity in your home could be the answer for your financial needs or desires. If you're 62 or older and own your home, or know someone who meets this eligibility, a reverse mortgage could be an ideal financial solution for medical expenses, monthly bills, home repair and improvement, travel or simply to have some extra financial security.
A reverse mortgage offers the following benefits:
- Access to money that you can use however you desire.
- Retain ownership of your home while enjoying the money now.
- Receive potentially tax-free funds that do not effect your Social Security and Medicare benefits.
- Choose how you receive your funds: single lump sum, monthly cash advance, a line of credit or a combination of these options.
- Pay no monthly mortgage payments (you would still be responsible for insurance and property taxes).
- Never need to repay the loan so long as you live in your home.
- Federally insured.
What is a reverse mortgage? It's a way to tap into the equity you've built in your home and turn it into cash you can use to make your life easier and more fulfilling. Unlike a home equity loan, you don't have to make payments each month.
Who is eligible? You and any other owners of your home must be 62 years of age or older, and live in your home as your primary residence. The home must meet HUD's minimum property standards, although you may use the reverse mortgage to pay for any repairs that may be required.
How can I receive the money? The cash you get from a reverse mortgage can be paid to you in a single lump sum, a monthly cash advance, a line of credit, or in a combination of these options.
Will I still own my home? Yes. Like a conventional mortgage, you maintain ownership of your home, and can continue to live in it as long as you like. The loan doesn't have to be repaid until you leave or sell the home. However, you are still responsible for keeping the home in good repair.
What are the monthly mortgage payments? There aren't any. That’s why they call it a "reverse" mortgage. Unlike traditional loans, in a reverse mortgage, the bank pays the borrower. You are, however, responsible for keeping insurance and property taxes current.
How can I use the money? Any way you see fit. Some people use it to cover monthly living expenses. Others set up a cash account for unexpected expenses like auto repairs or health care. You can even use it to enjoy some of life's pleasures such as travel or a special treat. It's up to you.
What are the tax implications? The money is generally tax-free. Technically, it's not considered income—just assets you already have in the form of equity. Because state laws vary, you should consult a tax advisor.
How is it different than a home equity loan? Reverse mortgages require no monthly payments, and there are no income requirements. In most cases, credit history is not a factor, either.
How will a reverse mortgage affect the estate I leave to my heirs? When you sell the home or no longer use it for your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest and service fees. The remaining equity, if any, belongs to you or your heirs.
When will the principal and interest charges come due? The loan must be paid in full when: a) the last surviving borrower passes away or sells the home; b) all borrowers permanently move out of the home; c) The last surviving borrower fails to live in the home for 12 consecutive months due to physical or mental illness; d) you fail to pay property taxes or insurance; or e) you let the property deteriorate beyond what is considered reasonable wear and tear, and do not correct the problems.
Are there other fees? Beyond interest charges, most reverse mortgages have an origination fee, closing costs, mortgage insurance, and a monthly servicing fee. These can be paid by the reverse mortgage itself, so there is no immediate burden on the borrowers. The costs are added to the principal and paid when the loan comes due.
What if I still owe money from a first or second mortgage? You may still be eligible for a reverse mortgage. The funds from the reverse mortgage could be used to pay off whatever existing mortgages you have on the property.
