Whether seeking money to finance a home improvement, pay off and satisfy a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to “reverse mortgage loan." They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.
In a “regular” mortgage, you make monthly payments to the lender. But in a reverse mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence or do not comply with the loan terms. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.
To qualify for a reverse mortgage, you must be at least 62 and live in your home. The proceeds of a reverse mortgage loan (without other features, like an annuity) are generally tax-free, and have minimal income requirements. The borrower's income is used to determine willingness to pay property taxes and homeowner's insurance.
The three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are loans developed by private sector companies.
Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.
Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. However, they may affect Medicaid and other benefits. You retain the title to your home and do not have to make monthly mortgage payments. However, you do remain responsible for property taxes and homeowner's insurance. The loan must be repaid when the last surviving borrower or non-borrowing spouse dies, sells the home, no longer lives in the home as a principal residence or does not otherwise comply with the loan terms. In the HECM product, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.
Please note: These materials are not from HUD or FHA and were not approved by HUD or any government agency.