Reverse Mortgage for Beginners

Slowly but surely, more Americans are gaining awareness of the reverse mortgage, a financial tool specifically designed to help seniors convert home equity into money that can be used for a variety of purposes. There are a number of spokespeople - most notably Henry Winkler of One Reverse Mortgage - and a number of financial professionals such as financial advisors have begun to accept the reverse mortgage as a valuable financial tool. However, we think it's important to cover the basics, just so that you know exactly what's going on.


Who's Eligible for a Reverse Mortgage?

Reverse mortgage loans are available to individuals who are 62 and older with substantial equity in the home. This means that you own your home free and clear or your mortgage is almost entirely paid off and you will use the proceeds of the loan to repay the remaining balance. Additionally, you must live in the home as a primary residence and be up to date with property taxes and home maintenance. The property can be a single family or 2-4 family home, though the borrower must live in one of the units in the latter case.


What's a HECM?

The vast majority - over 90% - of reverse mortgages are from the Home Equity Conversion Mortgage (HECM) program sponsored by the Federal Housing Administration (FHA). The government guarantees these loans, but the government is NOT lending you money; you will receive your reverse mortgage from a private lender.


Is a Reverse Mortgage the Same as a Home Equity Loan (HEL)?

No, there are a few key differences. To qualify for a home equity loan, you will need a certain amount of income and will be required to make monthly payments. There are no monthly payments with a reverse mortgage, and though lenders are stricter now about who qualifies, it's generally easier to qualify than a HEL.


How Much Can You Borrow?

This depends on a few factors, so we can't really tell you without knowing more about your situation. However, we can tell you what these factors are: the age of the borrower (or age of the youngest borrower if there is more than one), where mortgage rates are at the time you take out your loan, how much equity you have in your home, and how you choose to receive your reverse mortgage. Older individuals will be able to borrower more.


How Does this Affect my Family?

With a reverse mortgage, you may stay in your home until you pass on or stop using it as a primary residence. Once one of these two events occurs, you or your family have the choice of repaying the balance on your loan - the amount taken out plus interest that has accrued - or allowing the bank to sell the house to get its money back. Naturally, a reverse mortgage is a decision that should be considered along with family so that everyone is on the same page and comfortable with what will happen.


A Few Resources for You

National Council on Aging: (800) 510-0301

HECM Counselors: (800) 569-4287

https://www.onereversemortgage.com/

http://www.reversemortgageadviser.com/

http://reversemortgagalert.org