Reverse Mortgages: How Do They Work?

Reverse Mortgages are exploding in popularity and as more and more baby boomers reach age 62 and beyond they will become eligible to cash in on their home equity with a reverse mortgage.

A reverse mortgage is a home loan you don’t have to pay back for as long as you live in your home. It can be paid to you in one lump sum, as a regular monthly income, or at the times and in the amounts you prefer. The loan and interest are repaid only when you sell your home, permanently move away, or die.

Because you make no monthly payments, the amount you owe grows larger over time. By law, you can never owe more than your home’s value at the time the loan is repaid. You continue to own the home, so you must pay the property taxes, insurance, and repairs. If you fail to pay these, the lender can use the loan to make payments or require you to pay the loan in full.

The amount of funding you get from a reverse mortgage usually depends on your age, your home’s value and location, and the cost of the loan. The greatest amounts typically go to the oldest owners living in the most expensive homes getting loans with the lowest costs. Most people get the most money from the Home Equity Conversion Mortgage (HELM), a federally insured program.

Loans offered by some state and local governments are generally for specific purposes, such as paying for home repairs or property taxes. These are the lowest cost reverse mortgages. Loans offered by some banks and mortgage companies can be used for any purpose.

If you have questions about Reverse Mortgages, and whether they might be right for you, post your question or comment using the "comment" link below and we’ll get back to you with answers to your questions, or find a loan professional who can answer your questions for you.