A reverse mortgage lets homeowners aged 62 and older convert part of their home equity into cash without selling the home or making monthly mortgage payments. The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the FHA.
How a HECM works
- You keep title to your home and continue to live in it as your primary residence.
- You can receive the proceeds as a lump sum, a line of credit, monthly payments, or a combination.
- No monthly mortgage payments are required. Interest and fees are added to the loan balance over time, so the balance grows and your equity shrinks.
- The loan becomes due when the last borrower sells, moves out for more than 12 months, or passes away. You or your heirs then repay the balance, usually by selling the home, and keep any remaining equity. Because a HECM is non-recourse, you never owe more than the home is worth at that time.
Your ongoing obligations
You must keep the home as your primary residence, maintain it, and stay current on property taxes, homeowner's insurance and any HOA dues. Failing to do so can make the loan due.
Requirements
- Youngest borrower aged 62 or older, with substantial equity in the home.
- A counseling session with a HUD-approved independent counselor before you apply. This is required by law and is there to protect you.
- A financial assessment to confirm you can meet the ongoing obligations.
Is it right for you?
A reverse mortgage can be a sound tool for staying in your home with more income, and a poor one if you plan to move soon or want to leave the home unencumbered to heirs. We will lay out the costs, the projected balance over time, and the alternatives, and we encourage you to involve your family and the HUD counselor in the decision.