Reverse Mortgages

A reverse mortgage is a special type of home loan that lets a homeowner 62 years of age or older convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. You can turn the value of your home into cash without having to move or to repay the loan each month as long as you live there.

The cash you get from a reverse mortgage can be paid to you in several ways:

No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home.

The purpose of a reverse mortgage is different from that of a traditional "forward" mortgage. The purpose of a forward mortgage is to purchase a home. The purpose of a reverse mortgage is to get cash from your home.

In a forward mortgage, your loan balance (the amount you owe) gets smaller with each monthly payments to the lender while the value of your home usually increases. In other words, your home equity grows larger over time as your debt decreases. Forward mortgages are "falling debt, rising equity" loans.

In a reverse mortgage, your loan balance (debt) rises each time you get money from the lender, as interest is added to the outstanding loan balance, and you make no repayments to the lender. Unless the home's value grows very fast, the loan balance starts "catching up" to it. Reverse mortgages are typically "rising debt, falling equity" loans.

Despite its drawback, reverse mortgages are preferable options when it comes to paying for your healthcare costs, remodeling your home, making a big purchase and changing your lifestyle. Moreover, if you have debts to pay off, need money for someone's education or make plans to go on a vacation, reverse mortgages are worth considering.

The three basic types of reverse mortgage are:

Be cautious if anyone tries to sell you something, like an annuity, and suggests that a reverse mortgage would be an easy way to pay for it. If you don’t fully understand what they’re selling, or you’re not sure you need what they’re selling, be even more skeptical.

Keep in mind that your total cost would be the cost of what they’re selling plus the cost of the reverse mortgage. If you think you need what they’re selling, shop around before you buy.

If you suspect that anyone is violating the law, let the counselor, lender, or loan servicer know. Then, file a complaint with:

Whether a reverse mortgage is right for you is a big question. Consider all your options. You may qualify for less costly alternatives. For more information on reverse mortgages, visit AARP.