Everything You Need To Know About Reverse Mortgages


What You Need To Know Before Taking Out A Reverse Mortgage

Need extra money for retirement or medical bills? Can’t afford the vacation you’ve always dreamt of taking? Well, if you and your spouse are 62 years or older, you could qualify for a reverse mortgage, allowing you to do any of these things and more. With a reverse mortgage, seniors can afford things they want or need, while not completely depleting the nest egg they were planning on leaving for their families after they pass. A reverse mortgage allows you to tap into the equity you’ve built up in your home. In a reverse mortgage, the bank is essentially buying back ownership of the home from you, just as you paid the bank to gain ownership of your home when you first bought it. You receive payments from your lender, which, depending on the type of reverse mortgage you receive, you might be able to use for anything you want. The loan is repaid when you move out, or, if you pass away, your heirs inherit the lien on the house. But there is much more to reverse mortgages than simply payment and repayment. SEE ALSO: 5 Common Misconceptions About Reverse Mortgages

Types Of Reverse Mortgages

According to the Federal Trade Commission, there are three major types of reverse mortgages:
  • Single-purpose reverse mortgages are offered by state and local government agencies and some nonprofits. They can only be used for one purpose, like paying back medical bills, which is specified by the lender in the terms of the agreement.
  • Home Equity Conversion Mortgages (HECMs) are federally insured, have no income or medical requirements, are widely available, and can be used for any purpose. However, they can cost more money, especially in regards to the upfront costs.
  • Proprietary reverse mortgages are distributed privately and backed by the company that distributes them.

Loan Requirements

Along with the age requirement, there are a few other stipulations for this loan. Requirements change based on the type of loan you receive. For a HECM, the most popular of the reverse mortgage programs, the requirements include:
  • Mortgage counseling: Applicants must attend free counseling from a Federal Housing Administration (FHA)-approved counselor.
  • Residency: You must live in your home and it must be your primary legal residence.
  • Ownership: Participants must own their home outright or be able to pay off the rest of their previous home loans with proceeds from the HECM.
  • Construction guidelines: The house must follow the construction guidelines from the Department of Housing and Urban Development (HUD) and should be a single-family home. If your home is not a single family home, though, you might still be able to get a HECM. Talk to an FHA-approved counselor to see if you qualify.
  • Ongoing charges: You must be able to pay property charges, like taxes and insurance.

Borrowing Limits And Methods

The amount you can get from a reverse mortgage depends primarily on four factors: your age, current interest rates, the appraised value of the home, and the program’s lending limits. Generally speaking, the older you are, the more valuable your home, and the lower the current interest rates, the more you’ll receive. You can access your money in different ways as well. Disbursement methods include a lump sum at closing, equal monthly payments over a number of months or years, a line of credit, or any combination of these options. SEE ALSO: 5 Common Features Of Reverse Mortgages


If you decide during closing that a reverse mortgage is not right for you, there are still ways out. You can cancel your reverse mortgage for any reason without penalty up to three days after closing. All you need to do is notify your lender in writing. Send the letter by certified mail and ask for a return receipt so you know when your lender has received the mail. After a cancellation, the lender has 20 days to return the money you paid for financing.

Is A Reverse Mortgage Right For You?

Making decisions regarding your house can be difficult and extremely stress-inducing, especially when it affects not only your future, but also your children and family’s futures. A reverse mortgage is not right for everyone, but for those who are going to stay in their homes for a long time and need to supplement their income, a reverse mortgage can help.
Date of original publication:
Updated on: November 10, 2015

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