Understanding Reverse Mortgages

A reverse mortgage is a financial tool designed for homeowners aged 62 and older, allowing them to leverage the equity in their homes without the need for monthly repayments. Unlike traditional mortgages where the homeowner makes payments to the lender, with a reverse mortgage, no payments are required. This loan option enables seniors to convert a forward mortgage to a reverse and/or access tax-free funds while remaining in their homes. However, repayment is required upon the homeowner's death, permanent relocation, or sale of the property.

To be eligible for a reverse mortgage, the primary homeowner must be at least 62 years old and own the property outright or have significant equity. Other requirements include occupying the property as a primary residence, maintaining financial capability to cover property-related expenses, and participating in a counseling session provided by HUD-approved counselors.

A reverse mortgage can be used to help someone purchase a home. Known as a HECM for Purchase, the homebuyer provides a substantial down payment and borrows the balance due without any obligation to make a monthly mortgage payment.  The homebuyer can preserve other retirement savings, allowing that money to stay invested and grow.