How a Reverse Mortgage Works
You cannot get a reverse mortgage before age sixty-two. If you project needing more income than you will have after that, you may apply for a reverse mortgage and tap the equity you have accumulated in your house. Some of the most compelling reasons to consider a reverse mortgage are:
You can pay for the services you need to stay in your home.
There are no income requirements to qualify.
You don't have to make monthly payments — the loan is fully paid later.
You and any co-owners can live in your house your entire lives.
The Department of Housing and Urban Development has a program called Home Equity Conversion Mortgage (HECM) that backs reverse mortgages. They have established market values throughout the country that they will support. If you happen to have a house with significantly higher value than the norm for your area, you could choose a private lender; this will cost more, but you can get more cash with this alternative.
Before finalizing a decision to take out a reverse mortgage, you definitely will want to research and compare loans. To get an HECM loan, you will be required to get counseling from a qualified counselor. You can get a list of HECM counselors by calling 800-569-4287, or go to
How long will you be living in your home?
Will the value of the home in the marketplace go up or down during those years?
How much cash will be advanced to you over the course of the loan?
If you are planning on selling your home soon to move to a smaller place, or if you are looking for a relatively small amount of money for a finite need, a reverse mortgage may not make sense. There are hefty upfront costs, making it a rather expensive way to get your hands on cash. It is best used for long-term cash-flow needs, particularly the extra care and health services you might need in the decades to come. You can receive the cash from your loan in the following ways:
As a lump sum all at once
As a regular monthly advance
Through a “credit line” account — you then decide how much and when you want to receive payments
Via a combination of all of the above
A reverse mortgage may be one of the most significant financial decisions of your life. It can make the difference between being able to remain in your home, living the quality of life you wish, and not. You may want to seek the perspective of people whose opinions you value as you think through the pros and cons.
One group who will be affected, whether or not you include them in the decision-making, is your heirs. It is completely up to you whether to let your heirs, particularly adult children, be part of your planning. Some adult children react with relief knowing you can stay where you want to be and will be able to pay for your own needs. If not apprised of your planning, it may come as a shock to learn upon your death that the entire value of your house is going to a lender in repayment of the reverse mortgage. There are no right or wrong answers on this — it is completely up to you. Should you decide not to tell your heirs at the time of your decision, you might include a note with your estate plan to explain and avoid hurt feelings or misunderstandings.
Your antennae should go right up if you sense you are being pressured by someone to get a reverse mortgage. Be very wary of anyone who tries to get you to sign for something you do not fully understand. Your reverse mortgage proceeds can be considerable. Don't get conned.
Although reverse mortgages have not caught on in a big way yet, there is growing interest. With equity in real estate likely to fatten in the coming decades, they could be a supplemental income resource for retirees who may not have been able to put enough cash aside to cover all of their retirement needs.
