06/14

You might have heard about reverse mortgages – but what are they, exactly?

These are a type of loan that allows homeowners – aged 62 and older – to borrow some of their home’s equity as tax-free income. Most of these homeowners have already paid off their mortgage.

“Regular” mortgages consist of the homeowner paying the lender, but in a reverse, the lender pays the homeowner.

How the heck does that work, you may ask?

First, it comes down to how much the homeowner can actually borrow. This is known as the principal limit, and it varies based on the age of the youngest borrower or eligible non-borrowing spouse, current interest rates, the Home Equity Conversion Mortgage (HECM) limit, and the home’s value.

So – why would homeowners think about applying for a reverse mortgage? How does this help them?

These mortgages can be used for supplementing retirement income, covering the cost of any needed home repairs, or paying for any sort of out-of-pocket expenses.

And just like “regular” mortgages, there are several types of reverse mortgages:

• Home Equity Conversion Mortgage (HECM): this is the most popular type and are federally insured. These usually have higher upfront costs, but the funds can be used for any purpose.
• Proprietary Reverse Mortgage: This is a private loan, so it is not backed by the government.
• Single-purpose Reverse Mortgage: These are usually offered by nonprofit organizations as well as state and local government agencies. This loan can only be used to cover one specific purpose.

Reverse mortgages offer older homeowners to supplement income in retirement, pay for renovations, or other expenses. Although this might seem like the perfect option for you, it’s always best to talk with your lender to discuss your finances and how things might look in the long run. You can also speak with a HUD-approved counselor before committing to a reverse mortgage by visiting HUD’s online locator, here.

Looking for more tips and guides? Check out AmeriTitle’s Blog, here.