Reverse Mortgage Pays Home Owner

What is a Reverse Mortgage and How Does it Work?

A Reverse Mortgage (or HECM, Home Equity Conversion Mortgage), is a Government Insured LOAN backed by FHA, given based on the equity of a persons home.   If you qualify, the equity in your home can be used to pay off an existing mortgage and/or provide available cash for whatever purpose you choose.

Money received from a Reverse Mortgage is TAX FREE!  It will not affect your Medicare or Social Security Benefits.  It can however, affect State Government Assistance, so be sure to speak with a Reverse Mortgage Professional about this.

Money can be taken in monthly payments that will never run out while at least one borrower is still alive, in a Lump Sum, or left in a line of credit that will grow over time until you decide to use it.  You may also take money out in any combination of the three.  What does this mean?

Here is an example:

If you were to qualify for $150,000, and have a $75,000 mortgage, you will have $75,000 available to you after paying off the mortgage.  Using that $75,000, you can do the following:

  1. Take the entire amount in a Lump Sum (This is it, you cannot take any more money out using this method). *Most Common Method*
  2. Break it down into monthly payments guaranteed for life
  3. Break it down into monthly payments guaranteed for a certain time (i.e. 5yrs, 10yrs).
  4. Leave the money in a Line of Credit, and use it when you need it.  Money left in a Line of Credit will Grow over time as it is not used (i.e.  If you leave $75,000 in there and don’t touch it for 5 years, it may be as much as as $90,000 when you decide to access it.  TAX FREE!
  5. COMBINATION: You can take $25,000 up front, and leave the rest in a Line of Credit, or take monthly payments with the remaining balance.  Monthly payments can be stopped at any time.  Also, the money in a Line of Credit can be converted to a monthly payment at any time.

Important: If you DO NOT HAVE A MORTGAGE, you would have access to the entire $150,000.

There is NO payment ever due when you have a reverse mortgage (You ARE however, allowed to make payments if you wish to keep the interest accrual at bay).

A Reverse Mortgage has an interest rate attached to it just like any other home mortgage.  They will typically be a bit higher than conventional mortgage rates, but not extraordinary.  At the time of this review, rates were averaging around 5% for fixed and 3% for adjustable.

Since there is no payment ever due, interest does accrue on the loan as long as you are alive (both of you if there are two borrowers).

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By getting a reverse mortgage, you are allowed to remain in your home for the rest of your life.  If you pass away, your spouse will remain in the home until he/she passes away.  It’s protection for the both of you.

You are required to do the following while you have a reverse mortgage:

  1. Pay your property taxes
  2. Pay your home owners insurance
  3. General upkeep of the property

You do all of these things already, so it’s really not an issue, right?

In short, a Reverse Mortgage can grant you the ability to enjoy retirement a little more, alleviate financial stress, and ensure a safe and secure retirement in the most important place….YOUR HOME!

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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