Reverse Mortgages: A Quick Overview

By AGIS Staff, AGIS Network

Growing numbers of older homeowners are using reverse mortgages to help meet the costs of aging, including long term care expenses.Because the proceeds can be used for any purpose and payments can be received in a variety of ways, reverse mortgages are an especiallyflexible financial option.

So what's a reverse mortgage? As the name suggests, it's a type of loan that enables older homeowners to convert part of the value oftheir home into cash without having to sell the home or give up the title. The payments are made to you by the lender. Then, the loan mustbe repaid when the owner moves or dies.

To qualify for a reverse mortgage, you must be at least 62 years old, live in your home as your primary residence, and have equity inyour home. You may qualify even if you have an outstanding balance on your mortgage. If your spouse or other co-owner is younger than 62,that person's name must be removed from the title.

There are two types of general-purpose reverse mortgages. Proprietary reverse mortgages are offered by banks, mortgage companies, andother private lenders. Terms for these loans vary from one lender to the next. The other type, Home Equity Conversion Mortgages (HECMs),are federally insured and administered by the Department of Housing and Urban Development (HUD). Most homeowners should explore bothoptions.

Key advantages of reverse mortgages include:

• No income or medical qualifications.
• Disbursements are tax-free and can be received as a lump sum, monthly payment, line of credit, or combination of those methods.
• Money can be used for any purpose.

Commonly cited disadvantages include:

• A reverse mortgage uses up all or some of the equity in your home, leaving less for your heirs.
• The amount of total interest owed increases over time as the interest compounds.
• Interest isn't deductible on income tax returns until the loan is at least partially repaid.

Most reverse mortgages require you to receive advance counseling before getting the loan. Even if this is not required, you should getfinancial counseling before agreeing to any reverse mortgage.

Calculate how much you qualify for with the Reverse Mortgage Calculator. Eligibility: You must be at least 62 years old to apply.