Reverse Mortgage: The Home Loan That Pays You

Reverse Mortgage wordIf you are 62 years old or older and need cash to pay for your health care, add to your income, or repay your mortgage, you might want to consider a reverse mortgage. This would enable you to convert some of your home equity into cash, minus the extra monthly bills or selling your house.

How Exactly Does a Reverse Mortgage Work?

With a standard mortgage, you repay your lender each month to purchase your house over time. With a reverse mortgage program, on the other hand, your lenders pay you to take out a home loan. Your lender would get a portion of your home equity to pay you, sort of like an advance payment for the equity on your house.

In general, you won’t have to repay the money while you’re living in your house. If you pass away, move out, sell your house, don’t pay due taxes, or let your home become shabby, your spouse would have to pay off your reverse mortgage.

What are the Different Types?

The reverse mortgage program offers three types:

  • The government-insured reverse mortgage or Home Equity Conversion Mortgage (HECM)
  • The proprietary reverse mortgage offered by private lenders
  • The single purpose reverse mortgage, from select local and state non-profit organizations or government agencies

With any type of reverse mortgage, you essentially borrow against your home equity. You would still get to keep your home’s title and rather than pay monthly payments, your lender would give you an advance on a portion of your equity. The money your lender gives you isn’t usually taxable and won’t have any effect on your Medicare or Social Security benefits.

Is a Reverse Mortgage Right for You?

A reverse mortgage might be a viable loan option for qualified individuals who don’t have that much cash, but have substantial equity in their homes. They could use the money they get from their home equity to live a good life upon their retirement.

It’s only when you relocate, die, or sell your house that your mortgage is due. With this in mind, talk to a mortgage broker experienced in reverse mortgages to determine if a reverse mortgage is the ideal loan option for you.