How a reverse mortgage works
A traditional mortgage is paid down over time. A reverse mortgage works the other way. Instead of you paying the lender, the lender pays you from your home's equity, and the balance grows over time. Nothing is due until the last borrower sells, moves out permanently or passes away. Most reverse mortgages today are Home Equity Conversion Mortgages, or HECMs, which are insured through the Federal Housing Administration under the Department of Housing and Urban Development.
Ways to receive your money
| Feature | How it works | Good for |
|---|---|---|
| Line of credit | Draw funds when you need them, and unused credit can grow | Flexibility and emergencies |
| Monthly payments | Fixed payments for a set term or for as long as you live in the home | Steady income |
| Lump sum | One payment at closing, with a fixed rate | Paying off an existing mortgage |
| Combination | Mix a line of credit with monthly payments | Balanced plans |
Your responsibilities as a borrower
A reverse mortgage removes the monthly mortgage payment, not the costs of owning a home. To keep the loan in good standing you must:
- Live in the home as your primary residence
- Pay property taxes and homeowners insurance on time
- Pay any HOA or condo dues
- Keep the home in reasonable repair
Is a reverse mortgage right for you?
A reverse mortgage can be a safe plan for the right homeowner, but it is a big decision and it is not right for everyone. If you plan to move in a few years, or want to leave the home free and clear to heirs, other options may serve you better. That is why HUD requires counseling with an independent approved counselor before you apply, and why we encourage your family to be part of the conversation.
Basic HECM requirements
- The youngest borrower is at least 62 years old
- The home is your primary residence
- You have significant equity, or own the home outright
- You complete counseling with a HUD-approved counselor
- You can keep paying taxes, insurance and upkeep
- The home meets FHA property standards
