A reverse mortgage is a home loan available to homeowners aged 62 and older that converts part of your home equity into cash without requiring monthly mortgage payments. You keep the title to your home and continue living in it as your primary residence. The loan is repaid when the last borrower sells, moves out permanently, or passes away. The most common type is the FHA-insured Home Equity Conversion Mortgage (HECM). You remain responsible for property taxes, homeowner's insurance, and upkeep.
Video transcript
What are the requirements to get a reverse mortgage?
Here are the basics:
• At least one homeowner must be 62 years of age or older.
• You must live in the home as your primary residence.
• The home must be a single-family home, a two-to-four-unit owner-occupied home, a townhouse, an approved condominium unit, or certain manufactured homes.
• You must complete a HUD-approved educational counseling session, by phone or in person.
• You must keep paying property taxes, homeowner's insurance, and any HOA fees, and maintain the home.
What does the lender expect from me?
No mortgage payments are required once you are in the reverse mortgage program — though you can still make payments if you choose to. You must keep paying the property taxes, homeowner's insurance, and any homeowners-association dues, and you must continue to occupy the property as your primary residence.
Why do borrowers consider a reverse mortgage?
Borrowers consider one for many reasons, such as:
• Paying medical bills
• Making home improvements
• Helping with a grandchild's school tuition
• Getting cash so they can retire
• Enjoying life — traveling or visiting family
• Living with less financial stress
Does the reverse mortgage company own or keep my house?
No. You own your home. When the last borrower passes away, your heirs inherit it — just as with any other mortgage.
Common misconceptions
The bank does not want to take your house. And a reverse mortgage is not a free loan: like any loan, interest is charged and the balance must eventually be repaid.
Which property types are eligible?
Single-family residences, duplexes, triplexes, four-plexes, condominiums, and townhouses — as long as you occupy one of the units.
What credit do you need?
A past bankruptcy or imperfect credit is generally okay. The most important factors are your home equity and your age.
How much equity do you need?
Generally at least about 50% equity if you are closer to age 62. If you are closer to 90, you may qualify with somewhat less.
How much money can you receive?
Generally, you can expect roughly 40–60% of your home's value, depending on your age, the program you choose, and current interest rates.
How can you receive the proceeds?
1. As a lump sum at closing.
2. As monthly payments.
3. Or a combination — some at closing and the rest over time — if you have enough equity.
The amount available is based on:
• The youngest borrower's age
• How much equity you have in the property (if you're older and your balance is low, you'll generally have more available)
Does your spouse also need to be 62?
No. As long as one of you is 62 or older, you can be considered. There are also special protections for an eligible non-borrowing spouse.
How is the loan repaid?
A reverse mortgage requires no monthly payments for as long as a borrower lives in the home. The loan becomes due and payable when the last borrower permanently leaves — whether by passing away, moving to an assisted-living facility, moving in with family for care, or selling the home. At that point the balance must be repaid. Heirs can sell or refinance the property to repay it. Because it is a non-recourse loan, your heirs will never have to repay more than the home is worth.
What paperwork is needed to start?
• Photo ID and Social Security number
• A recent mortgage statement
• The declarations page of your hazard (homeowner's) insurance
• A completed basic application
• A copy of the trust, if the property is held in one
• Proof of completing the HUD counseling course
• Bankruptcy discharge papers, if applicable
A few more common questions:
• Processing typically takes about six weeks.
• You can still get a reverse mortgage if you currently have a loan.
• On credit and income, we look at any late payments in the last 24 months and whether you can afford your property taxes, insurance, HOA, and current bills. If that's a concern, a LESA (a Life Expectancy Set-Aside) may be an option.
• Typical closing costs range from about $5,000 to $23,000.
• There are no prepayment penalties.
• Reverse mortgages are available with fixed or adjustable interest rates.
Will the proceeds affect Social Security or Medicare?
No — proceeds don't affect Social Security or Medicare. They can, however, affect need-based programs such as Medicaid and SSI (Supplemental Security Income), so it's worth reviewing your situation with a benefits advisor.