What is a Reverse Mortgage?

A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.

Below are some common questions asked by consumers about reverse mortgages:

What are My Payment Options?

You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments (for the remainder of your life), as a line of credit, or a combination of these. The most popular option – chosen by more than 60 percent of borrowers – is the line of credit, which allows you to draw on the loan proceeds at any time.

How Much Money Will I Get?

The amount of money you get from a reverse mortgage depends upon your age (or the age of the youngest borrower on title to the property in the case of couples), appraised home value, current interest rates, and the FHA lending limit in your area. In general, the older you are and the more equity that is available in your home (the value less what you owe on your home), the more money you can qualify for.

Does My Home Qualify?

Eligible property types include single-family homes, manufactured homes (built after June 1976 with a permanent foundation and located on land that you own), condominiums, and townhomes.

How Can I Use the Proceeds from a Reverse Mortgage?

The proceeds from a reverse mortgage can be used for anything, whether it’s to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or installing a ramp), pay for health care, retire existing debts, buy a new car, take a "dream" vacation, cover property taxes, or even prevent foreclosure.

Are There Any Special Requirements to Get a Reverse Mortgage?

As long as you own a home, are at least 62 years or older, attend a required free 1 hour counseling session, and have enough equity in your home, you can qualify for a reverse mortgage. There are no special income or medical requirements. And there are no credit score requirements. You can be in bankruptcy or foreclosure and still qualify for a reverse mortgage.

What If I Have An Existing Mortgage?

You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing mortgage must be paid off. You can pay off the existing mortgage with the reverse mortgage, or any other savings you may be willing to spend.

For example, let's say you owe $100,000 on an existing home mortgage. Based on your age, home value, locations, and the current interest rates, you qualify for $200,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $100,000 left over to use as you wish.

If, however, you only qualify for a reverse mortgage of $85,000, then you would need to come up with $15,000 from your savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage. But, at least you will not have any monthly mortgage payments to worry about.

Will I Lose My Government Assistance If I Get a Reverse Mortgage?

A reverse mortgage does not affect regular Social Security or Medicare benefits. However, any reverse mortgage proceeds that you receive must be used immediately. Any funds that you retain would count as an asset and could impact Medicaid eligibility. For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local Area Agency on Aging or a Medicaid expert.

Why Do I Need to Get Counseling?

Counseling is one of the most important consumer protections built into the program. It requires an independent third-party to make sure you understand the program, and review alternative options, before you apply for a reverse mortgage. To be eligible for a reverse mortgage you must complete a free one hour counseling session from a local HUD-approved counseling agency, or a national counseling agency, such as AARP (800-209-8085), National Foundation for Credit Counseling (866-698-6322), and Money Management International (877-908-2227). Counseling is required for all reverse mortgages and may be conducted face-to-face or by telephone. Please contact your mortgage broker for more information.

By law, a counselor must review (i) options, other than a reverse mortgage, that are available to the prospective borrower, including housing, social services, health and financial alternatives; (ii) other home equity conversion options that are or may become available to the prospective borrower, such as property tax deferral programs; (iii) the financial implications of entering into a reverse mortgage; and, (iv) the tax consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate or his or her heirs.

When Do I Pay Back My Loan?

No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home, or permanently move out. If the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate. In the rare case that the amount owed on the reverse mortgage exceeds the sales price of your home, as long as you have mortgage insurance, the excess amount is waived.

To Figure out how much you may qualify for please visit: www.reversemortgage.org and click on the ‘Reverse Mortgage Calculator.’ Based on your date of birth, location of your home, and remaining loan balances, the calculator will be able to tell you an approximate amount that you may qualify to receive.