Considering a Reverse Mortgage?A reverse mortgage is a special type of home equity loan sold to homeowners aged 62 and older. The loan allows homeowners to access a portion of their home equity as cash. In a reverse mortgage, interest is added to the loan balance each month, and the balance grows. The loan must be repaid when the last borrower, co-borrower or eligible spouse sells the home, moves out of the home, or dies. You still retain ownership of your home, the reverse mortgage is only a lien against the property. Even if you have a conventional loan you can get a reverse mortgage to pay off your existing mortgage at close. Most reverse mortgages today are called Home Equity Conversion Mortgages (HECMs). HECMs are federally insured. If you are interested in a reverse mortgage, first see a HECM counselor. After years of paying down your mortgage, you have built up equity (the amount your property is worth today minus the amount you owe on your mortgage and any home equity loan or line of credit) in your home. With a reverse mortgage, you borrow against your equity. The loan balance grows over time. You don’t have to pay back the loan while you or an eligible spouse live in the home, but you still have to pay taxes, insurance, and maintain the home.When both you and any eligible spouse have passed away or moved out of the home, the loan must be paid off. Most people need to sell their home to pay off the loan. But, neither you nor your heirs will have to pay back more than your home is worth.
Reverse Mortgage Alternatives
- Home equity line (HELOC) of credit might be a way to borrow cash against your equity. These loans however have their own risks and dependent upon your current income and credit score.
- Refinancing your current mortgage with a new mortgage may lower your monthly mortgage payments.
- Lowering your expenses by reducing your monthly bills, or consider selling your home into a more affordable home to reduce overall expenses.
If a Reverse Mortgage is Right For YouThe loan can be distributed in a number of methods.
- With a line of credit, you only pay interest on money you use. The amount of money available to you grows over time.
- This can be a good choice if you need additional monthly income to cover daily living expenses. You can combine a monthly payout with a line of credit.
- Single disbursements typically offer less money than other HECM payout options. With a single disbursement, you will pay interest on your money even when you don’t spend it.
- No matter what payout option you select, there will be some restrictions on how much money you can access in the first year.