Nowadays, reverse mortgages are becoming popular among seniors and retirees as a way to supplement their income and allow them to live comfortably through their retirement. But it’s not for everyone and there are pros and cons.

What Is a Reverse Mortgage?

A reverse mortgage (commonly called HECMs or home equity conversion mortgages by FHA or HUD) is easier to understand if you compare it to a traditional “forward mortgage”. A forward mortgage is what you use to buy a home. Debt is created against your home when you receive money for the loan and you pay money to a lender to decrease that debt. As time goes on, your debt decreases and your equity increases.

A reverse mortgage works just the opposite. You receive money using the equity from your home and you don’t have to make monthly payments. As time goes on, your debt increases and your equity decreases.

Who Qualifies?

To qualify for a reverse mortgage, you must be 62 years old or more, you must have equity in your home and the home must be your primary residence. There are no income, employment or credit qualifications.

The Facts

The amount you receive depends on your age and the value of the home. The older you are, the more money you’ll get from the reverse mortgage. The debt you owe equals all the loan advances you receive. In addition, interest will be added to your loan balance.

You can draw your money by receiving it in a lump sum, as a monthly cash advance, as a credit line type of account, or as a combination of these methods.

The fees that are charged on a reverse mortgage can be paid for with the money you receive from the loan. This is called “financing” the loan costs. However, since you are still the homeowner, you are still responsible for paying property taxes and home insurance.

Your reverse mortgage will become due and payable when the last surviving mortgage holder permanently moves out, sells the home or dies. It can also become due if you rent out any part of your home, declare bankruptcy, abandon your home, commit fraud, or the home becomes condemned.

The Pros

The most obvious benefit is that unlike a home equity loan, no repayment of the reverse mortgage is required until you no longer occupy the home as your primary residence. And no monthly mortgage payments required means your income is not a qualifying factor.

If your loan balance increases, it can never exceed the value of your home since how much you get is a percentage based on the value of your home. This means you can never lose your house and you’ll never owe more than what your home is worth at the time the loan is paid.

The money you receive is tax-free* and there is no debt left to your heirs or estate.

Proceeds from the loan are not considered income and therefore, will not affect Medicare, Social Security, Medicaid or Supplemental Security Income (SSI).

The Cons

A reverse mortgage can never be on a second home or vacation home. It must be on your primary residence. Also, you may not rent out any part of your home.

You may not qualify based on what you owe on your house or if you don’t meet the age requirement.

If you need to borrow a large percentage, say 80%, you would have to get a conventional “forward mortgage” in order to do so since the amount you receive from a reverse mortgage is a percentage based on your age. So, for example, if you’re 75 years old, you can only borrow 65% of the value of your home. To borrow as much as 80%, you’d have to be 90 years old.

The loan processing may take much longer than a conventional “forward mortgage” because it is an FHA program. It may take up to 2-3 months to process.

Interest rates and costs may be higher than a conventional “forward mortgage” which may offer more options.

Reverse mortgages are a great way for many seniors and retirees to supplement their income. However, it’s not necessarily for everyone. As with all mortgages, the best program depends on your individual situation. You should always do as much research as you can to find out which loan is best for you.

*As always, please consult your tax advisor.

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This Post Has 23 Comments

  1. Hello,
    Does the age of the house matter? Can a 63 yr old on a new construction with more than 60% equity on the house qualify?

    1. Hi Mary:

      The age of the house doesn’t matter when it comes to a reverse mortgage. It’s the age of the person. You have to be 62 or older. If this makes sense for you, you can check into your options with our friends at One Reverse Mortgage. You can also give them a call at (888) 980-1543. Have a great day!

    1. Hi Mary:

      One of our friends over at One Reverse Mortgage can absolutely work with you to figure that out. You can also give them a call at (888) 980-1543 at your convenience. They would be able to go over your situation in detail.

  2. I am inquiring for my sister who will be 62 on 10-9-16 and has been in he hospital a few times this year. she owns a town home, no mortgage lien on property. purchased in Jan 2015 for 51K value may be between 50-60K today. What amount may she be able to get? she is bogged down with plenty of medical bills and association fees, medication and needing food ( which we help her with). the taxes on the property are paid for this year. She lives in Summit County, OH

    1. Hi Flora:

      I’m going to recommend you talk to our friends at One Reverse Mortgage. They’ll be able to tell her more about her options and help get her set up if she decides it’s right for her. You can get started online or call 800-401-8114.

      Kevin Graham

  3. I am 71 and am very interested in reverse mortgage (having lost my job recently). I owe $134,000 and paid 223,000 ten years ago for new construction. I have consolidated credit card debt recently and am struggling with monthly costs such as gas, electric, mortgage payments, etc., would I qualify.

    1. Happy New Year’s Eve, Noreen. I’m truly sorry to hear about you losing your job, and I’ll do my best to point you in the right direction. I’m going to pass your message along to One Reverse Mortgage, which is a great company that specializes in your situation. They’ll walk you through the ins and outs of the reverse mortgage so you can see if it’s the right decision for you.

      Thank you for your comment, Noreen. And have a happy New Year.

  4. I an 84 and a widow. I own my home. It is an older home.
    I was wondering if I could use the loan to put a washer and dryer on the first floor.
    Then I would not have to go to the basement. . Nova Patterson

    1. Good morning, Nova! I’m going to have an expert from One Reverse Mortgage reach out to you with an email. They’ll speak with you about some of your options. Have a nice weekend!

    1. Hi Judith, the credit score does not affect eligibility for a reverse mortgage, they do a Financial Assessment of the client’s credit history to determine if set-asides need to be set up. Also, they take into account the reasons behind late payments and make exceptions based on certain criteria. Hope this helps!

    1. Hi, Russ, in most cases only one person has to be 62 to get a reverse mortgage. However, there are some state-specific guidelines that may require both. To get more specific information, please call us at 800-694-5611 and one of our licensed specials would be happy to further assist you. Have a great day!

  5. Would like information on obtaining a reverse mortgage. We are going to visit with a HUD Counselor next Tuesday. We have been contacted by AAG but like information from Quicken Loans. We are particularly interested in a line of credit

    1. Hi Hubert! We’ll have someone from One Reverse Mortgage, our sister company, reach out to you with information about reverse mortgage options.

  6. I’m 63 and owe less than half on my home. I’m interested in a reverse mortgage. Please send me information. What is the interest rate today. Can the interest rate change or is it fixed at time of signing. Will I need to pay for an appraisal?

    1. Hi Sue! I’ve passed your information on to our Reverse Mortgage experts who will reach out with more information soon.

    1. Hi Jim! Based on the information you’ve provided, it looks like we may be able to get you approved for a reverse mortgage once you turn 62. The next step would be to speak with one of our mortgage bankers who can go into more detail with you. I’ve passed our common ton to our reverse mortgage team and they will be reach out soon.

  7. My husband died at the end of December, 2014. I am 69 years old. I live in our house that is valued at approximately 150000.00 . I owe approximately 120000.00. Would I qualify for a reverse mortgage?

    1. Hi Mary! Based on the home value and your mortgage, it’s unlikely you’d be eligible for a reverse mortgage. However, I’ve passed this on to our team of mortgage experts who will reach out to you soon to look more closely at your situation and see if there’s anything we can do.

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