Reverse Mortgages

Improve your life by cashing in on your home’s equity

Whether seeking money to finance a home improvement, pay off  a current mortgage, supplement their retirement income, or pay for healthcare  expenses, many older Americans are turning to “reverse” mortgages. They allow  older homeowners to convert part of the equity in their homes into cash without  having to sell their homes or take on additional monthly bills.

In a “regular” mortgage, you make monthly payments to the  lender. But in a “reverse” mortgage, you receive money from the lender and  generally don’t have to pay it back for as long as you live in your home.  Instead, the loan must be repaid when you die, sell your home, or no longer  live there as your principal residence. Reverse mortgages can help homeowners who  are house-rich but cash-poor stay in their homes and still meet their financial  obligations.

To qualify for most reverse mortgages, you must be at least  62 and live in your home. The proceeds of a reverse mortgage (without other  features, like an annuity) are generally tax-free, and many reverse mortgages  have no income restrictions.

Three Types of Reverse Mortgages

The three basic types of reverse mortgage are: single-purpose reverse  mortgages, which are offered by some state and local government agencies and  nonprofit organizations; federally-insured reverse mortgages, which are known  as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S.  Department of Housing and Urban Development (HUD); and proprietary reverse  mortgages, which are private loans that are backed by the companies that  develop them.

Single-purpose reverse mortgages generally have very low  costs. But they are not available everywhere, and they only can be used for one  purpose specified by the government or nonprofit lender, for example, to pay  for home repairs, improvements, or property taxes. In most cases, you can  qualify for these loans only if your income is low or moderate.

Loan Features

Reverse mortgage loan advances are not taxable, and generally do not affect  Social Security or Medicare benefits. You retain the title to your home and do  not have to make monthly repayments. The loan must be repaid when the last  surviving borrower dies, sells the home, or no longer lives in the home as a  principal residence. In the HECM program, a borrower can live in a nursing home  or other medical facility for up to 12 months before the loan becomes due and  payable.

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