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What is a reverse mortgage?

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A reverse mortgage, available only to homeowners age 62 and above, is most often a government-insured FHA mortgage loan program that allows borrowers to convert their home equity into money. A reverse mortgage, known formally as a Home Equity Conversion Mortgage or HECM, does not need to be repaid until the homeowner sells their home or passes away.

Reverse mortgage qualifications

Unlike a standard mortgage, a reverse mortgage does not require good credit or a particular level of income. To qualify, borrowers must:

  • Use the home as their principal residence
  • Be age 62 or older
  • Have a low mortgage balance
  • Meet with a HUD-approved reverse mortgage counselor

How a reverse mortgage works

Once qualified, borrowers can choose to receive their reverse mortgage proceeds as a lump sum, a line of credit, a monthly payment, or a combination of these methods. The amount that can be borrowed is based on a sliding scale according to the age of the homeowners and how much equity they have in the home.

If you have a reverse mortgage, you are responsible for maintaining your home, paying your property taxes and paying for homeowners insurance. Homeowners with a reverse mortgage cannot be forced to sell or turn over the title of their home unless they stop paying taxes or insurance premiums.

The reverse mortgage must be repaid when you sell the home or stop using it as your primary residence. If there is equity available in the home after the loan is repaid, the remaining equity belongs to you or your heirs. If the amount due on the loan is higher than the home's value at the time it is no longer occupied, it will not need to be repaid. No debt will be passed on to you or your heirs if the loan balance is higher than the home's value.

If you are considering a reverse mortgage, be sure you understand how the loan works by asking a reverse mortgage counselor plenty of questions.

Michele Lerner contributed to this answer.

About the author:

KTGA 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.

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