A reverse mortgage is a loan available to homeowners typically aged 62 or older that allows them to borrow against the equity in their home without having to make monthly mortgage payments. The loan balance increases over time because interest and fees are added monthly, and repayment is required only when the homeowner sells the home, permanently moves out, or passes away. The homeowner retains ownership of the home and is responsible for property taxes, insurance, and maintenance during the loan.
How It Works
- The homeowner borrows money based on the equity they have built up in their home.
- Payments from the lender to the homeowner can be received as a lump sum, monthly payments, a line of credit, or a combination.
- Interest accrues on the loan amount, causing the balance owed to increase over time.
- The loan does not have to be repaid until the homeowner moves out, sells the home, or dies.
- When the loan is repaid, it is usually done by selling the home.
- By law, the homeowner or heirs cannot owe more than the home's value at the time the loan is repaid.
Eligibility and Requirements
- Homeowners must generally be at least 62 years old.
- The home must be the primary residence.
- The borrower must continue paying property taxes, insurance, and upkeep.
- Reverse mortgages are non-recourse loans, meaning repayment is limited to the home’s value and cannot exceed it.
This loan type can provide seniors with income or cash by tapping into their home equity without having to sell or move out immediately.
