Understanding Reverse Mortgages

Eleanor Walker of West Chester, a suburb near Philadelphia, Pa sent in a request asking me to explain the basics of the reverse mortgage loan. Although there has been an increase in the volume of information available about these loans much of the information is less than accurate.

What makes it a "reverse" mortgage?

A reverse mortgage is exactly what its name implies — a loan whose features make it essentially the reverse of a traditional "forward" mortgage. Instead of making monthly payments, you can choose to receive them. That's the "reverse" part of a reverse mortgage. Instead of turning your income into equity, you turn your equity into readily accessible funds.

That last feature — the ability to turn your equity into readily accessible funds — is what most distinguishes a reverse mortgage from other loans, and it's what can make it so valuable to many senior homeowners. Having spent years repaying the mortgage that allowed you to buy your home, you can now tap into that investment to help you achieve your goals later in life. However you plan to use your equity — whether paying medical expenses, improving your home, or just adding a bit of cushion to your monthly budget — you'll have a golden opportunity to put your nest egg to work for you.

What happens to my home?

You remain the owner for as long as you continue to live there, keep the taxes current and maintain the property to FHA standards. After all, you've put a lot of money into your home, and you should have control over how to take it out.

Who is eligible?

To be eligible for a reverse mortgage, all owners listed on the home's title must be at least 62 years of age and occupy the home as their principal residence for the majority of the year. The property must be a single-family or a one-to-four unit owner occupied dwelling. Townhomes, detached homes, condominium units, planned unit developments (PUDs), and some manufactured homes or new construction properties are eligible.

Speaking with an approved reverse mortgage counselor is another important eligibility requirement. The Department of Housing and Urban Development (HUD) supervises counseling agencies that can work with you in person or, more commonly, over the phone. Your reverse mortgage consultant can provide you with a list of authorized counselors.

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