What is a “reverse mortgage”

A reverse mortgage (also called a Home Equity Conversion Mortgage or HECM loan) enables homeowners 62 and older to access their home equity without selling their home. The lender loans you money based on the equity you have in your home; you can choose to receive a lump sum, a monthly payment, a line of credit, or any combination of all three. Repayment is not necessary until a loan maturity event occurs- Usually when the last borrower sells the property or permanently moves out; either to another home or passes away. When you sell your home or no longer use it as your primary residence, you or your estate must repay the cash you received from the reverse mortgage plus interest and other finance charges to the lender. As the owner(s) of the home, you are required to continue to maintain the property, and you must pay your property taxes, insurance, and any other assessments related to ownership.

Reverse mortgages are ideal for homeowners who are retired or no longer working and need to improve their cash flow. Interest rates can be fixed or adjustable and under current rules, the money is nontaxable* and does not interfere with Social Security or Medicare benefits. Some “means tested” benefits like Medicaid can be affected. Your lender cannot take property away if you outlive your loan nor can you be forced to sell your home to pay off your loan even if the loan balance grows to exceed property value, as long as you continue to occupy the property and honor the terms of your loan agreement.
*Consult your personal tax advisor for specifics regarding your own situation.