A reverse mortgage enables senior homeowners 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. Reverse mortgages are available to individuals 62 or older who own a home. No mortgage payments are due during the life of the loan.
Borrowers can choose to receive the proceeds from a reverse mortgage in several ways. Either as a lump sum, fixed monthly payments for as long as they reside in their home, a line of credit, or as a combination of monthly income and line of credit.
Seniors can use the funds any way they wish—for home repairs and improvements, healthcare expenses, in-home care, education, and supplemental retirement income. A reverse mortgage becomes repayable when the borrower sells the home or permanently moves out. The repayment amount can’t exceed the current value of the home.
Reverse mortgages are originated largely by private lenders. The most popular is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration, an arm of the U.S. Department of Housing and Urban Development (HUD). Other types of reverse mortgages are the Fannie Mae Home Keeper loan and a proprietary "jumbo" reverse mortgage product called Cash Account, which is designed for seniors who live in higher-priced homes.
To learn more about reverse mortgages visit the National Reverse Mortgage Lenders Association.