Reverse Mortgage Loan
If you are 62 or older, a reverse mortgage loan can be used to turn a portion of the equity in your home into cash you can use for many different purposes, which may enhance and/or extend your retirement. If you currently have a forward mortgage, a reverse mortgage could eliminate your monthly mortgage payment.
What Is a Reverse Mortgage Loan?
A reverse mortgage loan is a type of mortgage loan that is reserved for borrowers aged 62 years or older who either own their home outright or have significant equity in their home. A reverse loan can be used to turn a portion of that significant equity stake into cash for retirement. The money received by the homeowner through a reverse mortgage loan usually comes tax free.*
You may also see a reverse loan referred to as a Home Equity Conversion Mortgage (HECM). This variation of reverse mortgage loan is insured by the U.S. Government’s Federal Housing Administration (FHA) and is only available through FHA-approved lenders.
*This information does not constitute tax advice. Please consult a tax advisor regarding your specific situation.
Potential Advantages of a Reverse Mortgage Loan
- You can receive money from the equity you have in your home, and it is usually tax free.*
You can receive these loan proceeds in a lump sum, in a line of credit, in a monthly cash flow payment or in a combination of these three options.
*This information does not constitute tax advice. Please consult a tax advisor regarding your specific situation.
- You may be able to eliminate your monthly mortgage payment.
With a reverse mortgage loan, you can refinance a traditional mortgage and free yourself of the burden of fixed monthly mortgage payments, as long as you live in your home as a primary residence, stay up to date on property taxes and homeowners insurance (and homeowners association dues, if applicable) and maintain the home.
- You will never owe more than what your home is worth when your loan matures and your home is sold.**
When a maturity event occurs (e.g., the property is no longer the principal residence of at least one borrower) and the loan becomes due and payable, neither you nor your heirs are responsible for paying the deficit if the balance owed on your reverse mortgage exceeds the home value. If at the time of your passing your heirs wish to keep your home, they can purchase it for 95% of the current appraised value of the property or the balance owed, whichever is less.
**There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes, insurance and maintenance (and HOA fees, if applicable). Credit is subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
- You may be able to bridge the Medicare gap from age 62 to 65
Many seniors delay retirement until they are 65 because they cannot afford to pay for their health insurance before Medicare kicks in at age 65. With a reverse mortgage loan, you can avoid paying income tax on money drawn from an IRA or other accounts to help keep your retirement funding plan in place without diminishing your current assets.***
***This information does not constitute financial planning advice. Please consult a financial planner regarding enhancements to retirement plans.
- You may be able to pay for long-term care expenses
With the proceeds from a reverse mortgage loan, you could purchase long-term care insurance to handle these expenses without losing your home in the process.
Reverse Mortgage Loan FAQs
Who is eligible for a reverse mortgage?
- Borrower(s) must be 62 years or older
- Must be homeowner and either own home outright or have significant equity
- Must live in home as primary residence (more than six months out of the year)
- Property must be a single-family home, a 2- to 4-unit dwelling or an FHA-approved condo
- Must meet minimal credit and property requirements
- Must receive reverse mortgage counseling from a HUD-approved counseling agency
- Must not be delinquent on any federal debt
- Learn more about reverse mortgage myths and facts!
How much home equity is needed for a reverse mortgage loan?
The specific percentage varies by lender and the type of reverse mortgage, but the general rule of thumb is to have at least 50% equity in your home.
Can you refinance your home loan if there is a reverse mortgage loan in place?
Reverse mortgage refinancing is an option that makes sense in certain situations. It may have been several years since you closed, and rates may have lowered, or it may make sense to switch from an adjustable rate to a fixed rate through a refinance. Perhaps your home has appreciated in value, and you have additional equity you’d like to tap into. Refinancing may increase the amount of money you are eligible to receive.
Can you sell the home if there is a reverse mortgage loan in place?
Yes. You can sella house with a reverse mortgage already in place. However, keep in mind that when you sell the home, your reverse mortgage comes due, and you will need to pay off the reverse mortgage loan balance, plus interest and fees, at the time of the sale.
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