For many families, their home is their largest single investment. Older homeowners looking for ways to raise current income may consider tapping into their home equity by using a reverse mortgage.
A reverse mortgage is a loan available to homeowners age 62 or older and is used to convert part of the home equity in a property into cash without having to sell the home or pay additional bills.
Repayment of the loan is deferred until the owner dies, the home is sold, or the owner leaves (for example, moves to an assisted care facility). Seniors can use the funds for any purpose such as supplementing Social Security, paying for medical expenses or making home improvements.
There are no minimum income or credit requirements, but applicants may be required to get financial counseling.
The lowest-cost reverse mortgages are single-purpose reverse mortgages offered by state and local governments, while private sector reverse mortgages and federally insured reverse mortgages are generally more expensive.
Whether to use a reverse mortgage requires a careful understanding of the product, including the risks and costs. Where can you go to learn more about reverse mortgages? The Web sites below offer a good starting point.
U.S. Department of Housing and
Urban Development (HUD)
A good place to start if you’re considering a reverse mortgage is HUD’s list of the “Top 10 Things to Know if You’re Interested in a Reverse Mortgage.” (Use the above link or enter “top 10 things to know” in the search box.) HUD’s Federal Housing Administration reverse mortgage program is called the Home Equity Conversion Mortgage (HECM) plan. The Top 10 list defines a reverse mortgage and details how to qualify, home eligibility, the differences between a reverse mortgage and a home equity loan, and how you receive payments. The site also provides a list of HUD-approved housing counseling agencies by state; you can also call 800/569-4287 for the agencies near you.
AARP Reverse Mortgages Area
The American Association of Retired Persons offers a reverse mortgage calculator, a 44-page downloadable consumer guide, a glossary of terms, and a fact sheet on reverse mortgages.
The calculator requires you to enter your zip code, date of birth and how much your home is worth (or your best guess). It will then produce a table that estimates how much cash you could get with: 1) a single lump-sum advance; 2) a line-of-credit account that grows larger each year if left untapped; or 3) a monthly loan advance for as long as you live in your home.
Articles include “Key Decisions About Reverse Mortgages,” “Making Your House Work for You,” and the cautionary “Reverse Mortgage Seduction.”
National Reverse Mortgage Lenders Association (NRMLA)
The NRMLA site offers current news on reverse mortgages and a series of free consumer guides that you can download or have mailed to you by calling 866/264-4466.
The About Reverse Mortgages area discusses the basic features of reverse mortgages, the steps to attain a mortgage, typical costs, payment options and consumer protections.
The Locate a Lender tool lets you search by state. All lenders are members of the NRMLA, licensed to originate reverse mortgages in the states in which they are listed, and have signed the NRMLA Code of Conduct.
The site also offers a reverse mortgage calculator and includes borrower stories.
National Aging in Place Council (NAIPC)
NAIPC provides a forum to help seniors who would like to continue living in the their own homes. The site offers a list of National Aging in Place Council members who offer reverse mortgages and their contact information.