If you’re a property owner, 62 or older, you can borrow against equity in your home and get cash or a line of credit

Unlike a regular mortgage, you don’t have to make monthly loan payments. Instead you repay the loan when you or your heirs sell the home.

Basically, a lender makes payments to you. You can get a lump sum, monthly payments, or a line of credit. Interest and fees on the loan get rolled into the balance each month. So the amount you owe grows over time, while your home equity decreases.

You get to keep the title to your home, and the balance isn’t due until you move out or die.

If there’s any equity left after the loan is paid, it goes to your estate. If not, or if the loan is actually worth more than the house, your heirs aren’t required to pay the difference. Heirs can choose to pay off the reverse mortgage or refinance if they want to keep the home.

These mortgages are backed by the Federal Housing Administration (FHA), and the borrower pays an insurance premium in order to participate in the program.

Additional Requirements

• You need to own the home outright or have paid down a most of the mortgage

• The property has to be your principal residence

• You can’t be delinquent on any federal government debt

• Standard credit check and eligibility requirements still apply

• You must be current on your property taxes, insurance and any homeowners association (HOA) fees

• You are required to attend an information session with an approved Reverse Mortgage counselor

The Pros

• A reverse mortgage can help secure retirement for retirees who don’t have a lot of cash savings or investments

• You can stay in your home Instead of having to sell

• You’ll pay off your existing home loan freeing up money to put toward other expenses.

• Money you get from a reverse mortgage is considered to be a loan advance so it doesn’t count as income unlike other retirement income

• You’re protected If the balance exceeds your home’s value, so your heirs don’t have to worry about paying the balance

The Cons

• You could lose your home to foreclosure if you can’t afford your property taxes, homeowners insurance, HOA fees and other costs associated with the home

• Your heirs could inherit less as a reverse mortgage usually requires the home to be sold to repay the debt instead of being left to your heirs

• It’s not free, you have to pay an upfront insurance premium that is usually 2% of your home’s value, plus origination fees at closing

• It could impact your other retirement benefits or qualification for other need-based government programs

• These loans come with many risks and are very complex, which may make them not be worth the extra cash

If you are considering a reverse mortgage, we can help walk you though the pros and cons based on your unique situation

Call us today to discuss your options and if a reverse mortgage could be a benefit to you.