A Reverse Mortgage or Reverse Home Mortgage (officially known as a Home Equity Conversion Mortgage – HECM) is a great financial product for seniors to use as part of their retirement plan.
When looking for ways to get cash from their home, most people consider selling
their house or borrowing against their home equity and making monthly loan
repayments on a home equity loan.
With a Reverse Home Mortgage, you get many of the benefits of selling your house and
all the benefits of a home equity loan - but you can still live in and
retain ownership of your home and don’t have to make any payments against the loan over time. No matter
how you structure a Reverse Mortgage, you typically don't pay anything back
until you die, sell your home, or permanently move out. On top of that, your ability to
secure a Reverse Mortgage is not dependent on your credit history, income level,
health or any other factors that might make a home equity loan expensive or
problematic. (You do, however need to keep up insurance, property taxes, and upkeep of your home.)
A Reverse Mortgage can allow you to stay in your home, eliminate any existing mortgage payments and get cash to use for any purpose.
So, what is the catch? Traditionally, the big disadvantages of a Reverse Mortgage are the relatively high
closing costs. In addition, lending limits and the calculations used to determine how much
money you are eligible for may mean that you cannot get as much money from a reverse mortgage
as you might from a normal mortgage. Nevertheless, if you need or want money for any purpose,
and are concerned about not being able to make the payments on a normal loan, then a reverse
mortgage may be right for you.
To be eligible for most Reverse Mortgages, you must own and reside in your home
and be a senior 62 years of age or older. (In most cases second homes, apartment buildings
and homes less than a year old are not eligible for a Reverse Mortgage.)