Homeowners age 62 and older may use a "reverse mortgage" to provide cash for a variety of needs, such as living expenses, health care, home repairs and upgrades or just extra funds. There are several reverse mortgage types, and the terms are different than a traditional mortgage. Learn about this loan product, and how it could make a difference in your retirement lifestyle.

The Federal Trade Commission (FTC) and the US Department of Housing and Urban Development (HUD) also have consumer research resources to check out.

Reverse Mortgage Starters

The concept behind reverse mortgages are senior homeowners are house-rich, but may be cash-poor. Home value may be a large portion of your net worth, yet you can't access this part of your savings to enrich your life in retirement. The reverse mortgage is a loan where you receive payments, tapping your home equity, with special terms for repayment just for seniors.

Reverse mortgages don't have to be repaid until you or the last surviving borrower dies, you give up the home as your main residence or you sell it. Some loans allow you to stay in a nursing home for up to a year before repayment is triggered.

There are several reverse mortgage types:

• Home Equity Conversion Mortgages ("HECMs"). HUD administers this loan type, and they're backed by federal insurance
• Single-purpose reverse mortgages. These are generally provided by a state or local government or a non-profit lender, and may meet certain needs, such as funding for home repair and improvement, or to pay property taxes, allowing a senior homeowner to afford living in a community
• Proprietary reverse mortgages. Private lenders back and offer these loans

Loan Amounts, Terms and Borrower Qualification

You must be 62 years old or older to qualify for a reverse mortgage. You need equity in your home; you can qualify if you have an existing mortgage with a small balance. The HECM loan program requires you to obtain loan counseling, as do some proprietary reverse mortgage lenders. The aim of counseling is to help you understand how the loan works and what your mortgage options are.

The loan amount you qualify for is based on a number of factors. These include your age, your home value and equity, the reverse mortgage type you select and the interest rate. The higher your age and equity amount, the higher the loan amount.

You can choose from several loan payout options including a lump sum, monthly payments or a line of credit, allowing you to choose when to access your equity and how much to take out, up to your credit limit.

Understand loan terms as you look at reverse mortgage loans. The Truth in Lending Act applies to these mortgages, so expect disclosures covering loan terms. Key terms you need to know include:

• The annual percentage rate, or "APR". This number states the cost of credit on an annual basis
• The total amount loan cost or "TALC" rate is the average cost of the loan, including all fees, projected into future years. This number gives you another benchmark to evaluate the loan and compare loans
• Mortgage insurance premium charges. Many loan fees are paid upfront, making this loan type more expensive, especially for short-term loans. A new HECM loan, the HECM Saver loan is a new loan type available as of October 4, 2010, with lower loan amounts and upfront fees
• Other terms include interest rate type (fixed or adjustable), points, and terms for payment, including acceleration clauses bringing the entire loan balance due immediately

Pros and Cons of Reverse Mortgages

Before you take out a reverse mortgage, look at the pros and cons of the loan. Points to consider include:

• Loan proceeds generally aren't taxed, but interest payments don't trigger a tax deduction until you repay some or all of the loan
• Loan payouts don't impact your Social Security or Medicare eligibility
• Your debt grows over time, leaving your estate smaller, with less for your estate beneficiaries
• While the reverse mortgage can help you stay in your home and improve your lifestyle, you still own the home and must keep up with repairs, taxes and other expenses. Failing to keep it up could trigger loan repayment

Finally watch for signs of predatory lending, unfavorable loan terms and get the loan you want. Don't give in to pressure to buy related products or services you don't want, such as home repairs or long-term care insurance policies. Also watch for terms for shared equity appreciation. The lender could claim a share of the windfall from a sharp rise in your home's appreciation.

Even though the mortgage loan is different, it's still a loan against one of your most valuable assets. Be the smart and calculated homeowner and borrower you've been in the past and get the right reverse mortgage for you.

Questions for Your Attorney

• I'm the executor of my mother's estate; can I let her reverse mortgage go into foreclosure if the loan is underwater?
• Can I refinance my reverse mortgage?
• I took out a reverse mortgage, and I then married my current spouse, who is in her 50's. Can I put her name on my home's title, and are the loan repayment terms changed by my marriage?

Related Resources on Lawyers.com^sm

- Contact a Real Estate Law Lawyer in your area for specific legal advice, and read Real Estate: Selecting a Good Lawyer
- Need a form? Access hundreds of Personal Legal Forms, including this Home Purchase Worksheet
- Read Refinancing "How-To's", Refinancing Pros and Cons or access more Residential Real Estate and Mortgages articles and information
- Legal Dictionary
- Visit the Legal Forums for discussions on Real Estate Law topics