Frequently asked questions
Questions on reverse mortgages? Discover everything you want to know.
The Basics
What is a reverse mortgage?
A reverse mortgage is a loan available to homeowners aged 62 or older who have substantial home equity. It allows borrowers to convert part of their home equity into cash without having to sell their home or pay additional monthly bills.
Who is eligible for a reverse mortgage?
To be eligible for a reverse mortgage, borrowers must be 62 years or older, occupy the property as their primary residence, and own the property outright or have a substantial amount of equity.
What types of properties are eligible for a reverse mortgage?
Eligible properties typically include single-family homes, 2-4 unit properties with one unit occupied by the borrower, HUD-approved condominiums, and certain manufactured homes that meet FHA requirements.
Are there restrictions on how I can use the funds from a reverse mortgage?
No, there are no restrictions. You can use the funds from a reverse mortgage for any purpose you choose, which can include daily living expenses, healthcare costs, home repairs, or travel.
Is a reverse mortgage a government loan?
The Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage and is insured by the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD).
Making the Decision
When might a reverse mortgage be a better choice?
A reverse mortgage might be a better option for those who need additional income during retirement, want to tap into their home equity without a monthly payment obligation, or for those who meet the age and property requirements and want to remain in their home.
When might a reverse mortgage not be the best choice?
A reverse mortgage may not be the best choice if you intend to leave your home soon, want to leave your home debt-free to your heirs, or if the costs associated with a reverse mortgage outweigh the benefits.
Can a reverse mortgage impact my government benefits?
Reverse mortgage proceeds generally do not affect regular Social Security or Medicare benefits. However, they can impact Medicaid and Supplemental Security Income (SSI). It's recommended to consult with a financial advisor or the appropriate government agencies about your particular situation.
Can I pay off a reverse mortgage early?
Yes, a reverse mortgage can be paid off early without penalty, which may be beneficial if your home’s value increases significantly or if you want to preserve more equity for your heirs.
How does a reverse mortgage affect my heirs?
Heirs will have options to either pay off the reverse mortgage balance to keep the home, or sell the home to pay off the balance. If the sales proceeds are insufficient to pay the balance, the FHA insurance covers the difference, so they will not owe more than the home’s value.
How the Loan Works
How does a reverse mortgage work?
A reverse mortgage allows homeowners to borrow money against the value of their home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold.
What happens if I outlive the loan?
If you outlive your reverse mortgage, you can continue to live in the home without making monthly mortgage payments. The loan will only become due when you pass away, sell the home, or permanently move out.
How do I repay a reverse mortgage?
A reverse mortgage is typically repaid from the sale of the home when the last surviving borrower passes away, sells the home, or permanently moves out. Any remaining equity after repaying the reverse mortgage belongs to you or your heirs.
What are the upfront and ongoing costs associated with a reverse mortgage?
The costs can include an origination fee, upfront mortgage insurance premium (MIP), appraisal fees, and other standard closing costs. Ongoing costs may include annual MIPs, interest on the loan, and service fees.
Can I sell my home if I have a reverse mortgage?
Yes, you can sell your home at any time with a reverse mortgage. Any equity that remains after paying off the reverse mortgage belongs to you or, if you pass away, to your heirs.
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