A reverse mortgage is a type of loan available to homeowners, typically elderly individuals, that allows them to convert a portion of their home equity into cash. Unlike traditional mortgages, reverse mortgages do not require monthly mortgage payments. Instead, the loan is repaid when the homeowner sells the home, moves out, or passes away.
A reverse mortgage is a financial product designed for homeowners who are at least 62 years old and have significant equity in their homes. It allows them to access a portion of their home equity in the form of loan proceeds without needing to make monthly mortgage payments. The loan is repaid only when the homeowner sells the home, moves out permanently, or passes away.
The key features of reverse mortgages include:
Home Equity Conversion: Reverse mortgages enable homeowners to convert a portion of their home equity into cash, providing them with additional income or a lump sum payment. The amount available depends on factors such as the homeowner’s age, the home’s value, and current interest rates.
No Monthly Mortgage Payments: Unlike traditional mortgages, reverse mortgages do not require monthly mortgage payments. Instead, the loan balance increases over time as interest accrues on the outstanding balance. The loan is typically repaid when the homeowner no longer resides in the home.
Homeownership Retention: With a reverse mortgage, the homeowner retains ownership and continues to live in the home as long as it remains their primary residence. They are responsible for property taxes, homeowners insurance, and maintenance.
Repayment: Repayment of the reverse mortgage loan occurs when the homeowner sells the home, permanently moves out, or passes away. At that point, the loan balance, including accumulated interest and fees, must be repaid. If the home is sold, any remaining equity after repayment goes to the homeowner or their heirs.
Reverse mortgages can be beneficial for seniors who have significant home equity but need additional funds to support their retirement or cover expenses. However, it is important to carefully consider the implications and costs associated with reverse mortgages, as they can impact inheritance and have financial implications in the long term.
Wade Pfau, Ph.D., CFA – Professor and expert on retirement income planning, including reverse mortgages.
Shelley Giordano – Reverse mortgage expert, author, and advocate for responsible reverse mortgage use.
David Certner – AARP’s Legislative Counsel and policy expert on retirement security, including reverse mortgages.
Jean Constantine-Davis – Attorney and policy expert specializing in reverse mortgage regulations and consumer protection.
Jack Guttentag – Professor emeritus of finance and expert in mortgage-related topics, including reverse mortgages.
U.S. Department of Housing and Urban Development (HUD) – Reverse Mortgages: www.hud.gov/program_offices/housing/sfh/hecm/hecmhome
National Reverse Mortgage Lenders Association (NRMLA): www.reversemortgage.org
AARP – Reverse Mortgages: www.aarp.org/money/credit-loans-debt/reverse_mortgages
Federal Trade Commission (FTC) – Reverse Mortgages: www.consumer.ftc.gov/articles/0192-reverse-mortgages