Reverse Mortgages Example

Reverse Mortgage: What You Need to Know

As you get older, you may consider taking out a reverse mortgage to supplement your retirement income. A reverse mortgage is a loan that allows you to access the equity in your home. The loan is repaid when the borrower dies, sells the property, or moves out of the home.

Before taking out a reverse mortgage, there are a few things to consider.

Age Requirements: You must be at least 62 years old to qualify for a reverse mortgage.

Home Equity: You must have enough equity in your home to qualify for the loan. The amount you can borrow depends on your age, the value of your home, and the interest rate.

Loan Types: There are two types of reverse mortgages: home equity conversion mortgages (HECMs) and proprietary reverse mortgages. HECMs are insured by the Federal Housing Administration (FHA), while proprietary loans are not.

HECMs are available with fixed or adjustable interest rates. The adjustable-rate HECMs have lower interest rates than the fixed-rate loans, but they can increase over time.

Proprietary loans typically have higher loan limits than HECMs. They also tend to have higher interest rates and fees.

Repayment: With a reverse mortgage, you don’t have to make monthly payments. The loan is repaid when you die, sell the property, or move out of the home. If you want to keep the property in your family, you may have to repay the loan when the last borrower dies or moves out.

If the loan balance exceeds the value of the property when it’s time to repay the loan, your heirs are not responsible for the difference. The FHA insures HECMs, so borrowers are protected from having to repay more than the value of the home.

Reverse mortgages can be a helpful way to supplement your retirement income, but there are a few things to consider before taking out a loan. Be sure to talk to a financial advisor to see if a reverse mortgage is right for you.

Get Started