All about Reverse Mortgages

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April is Financial Literacy Month

If you’re at or approaching retirement age and have equity in your home, you may have the option of taking out a reverse mortgage on your home.1 Learn more about reverse mortgages and their advantages and disadvantages.

What’s a reverse mortgage?

As you make mortgage payments on your home, you build up equity. A reverse mortgage is a loan that draws from that equity. Instead of paying the bank, the bank pays you.2

A reverse mortgage is different from a home equity loan or a home equity line of credit because these loans require you to begin paying off the loan plus interest while you’re still in your home.1

There are two types of reverse mortgages: public and private sector loans. Public sector loans are made by the government and usually cost less for the borrower, while private sector loans are made by banks, mortgage companies, and savings associations and may have higher costs.1

What’s right for you?

Only people 62 years or older can get reverse mortgages. Reverse mortgages have several other financial requirements such as owning a home with significant equity and using it as a primary residence. An approved loan counselor can tell you if you qualify.1

Advantages

  • You don’t have to start paying back a reverse mortgage loan while you live in your home.
  • Not having to pay the loan back right away is good if you plan to stay in your home for a long time.
  • A reverse mortgage can give you cash for things like home improvements, property taxes, and making up for investment losses.1

Disadvantages

  • When you die or leave your home, the loan must be paid back. Your heirs will have to pay back the loan by taking out a mortgage or selling the home.
  • Fees and interest can make reverse mortgages expensive.
  • Your home may not stay in your family.1

Homeowners must weigh the various advantages and disadvantages carefully when considering a reverse mortgage. Seeking expert advice is recommended.1

A word of warning: there are people and companies who will try to exploit you financially by offering you reverse mortgage services. Do not trust someone who wants to charge you a portion of your reverse mortgage payment to refer you to an FHA-approved lender. You can get this and other information about reverse mortgages at little or no cost by going to the US Housing and Urban Development Administration website or by calling (800) 569-4287.2


  1. Michael S. Gutter, Selena Garrison, Brent Litcheld, and Lisa Leslie, Reverse Mortgages: Understanding the Basics, FCS3305, Gainesville: University of Florida Institute of Food and Agricultural Sciences, 2013, http://edis.ifas.ufl.edu/fy1105
  2. ”Frequently Asked Questions about HUD’s Reverse Mortgages,” U.S. Department of Housing and Urban Development, n.d., http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten