A home equity conversion mortgage, commonly called a reverse mortgage, lets older homeowners take out and use the equity in a home without selling it. A reverse mortgage is a type of a loan that comes due when you or your heirs sell or refinance the house. You can use the money for anything you like.
Your Lender Pays You
Lenders base reverse mortgages on the equity you have in your home. Equity is the difference between what the house is worth and the mortgage balance you owe. If you have $100,000 in equity, the mortgage company will give you $100,000.
You can take the money as a line of credit, so you can tap into it when you need to, or you can ask for regular monthly payments. The lender will keep paying you until the amount of your equity runs out.
Not Everyone Qualifies
Reverse mortgages are available only to homeowners over age 62. You also have to live in the home. You must either have paid off your old mortgage or owe very little on it. You might have to take a class or attend counseling so you understand all the ins-and-outs of the reverse mortgage process.
There Are Associated Costs
You must attend a closing just as you would with a regular mortgage, so you'll have to pay all the normal closing costs. However, you usually don't have to pay these fees upfront. They're included in the amount of money you're taking from the lender and are typically paid at the end of the mortgage term. You also have to keep up with your regular real estate taxes, insurance, utilities, and maintenance payments.
The Mortgage Company Gets Its Money Back
A reverse mortgage comes due when you move out of your home or die. If you sell the property, the lender is reimbursed from the proceeds for the amount of money you took, plus interest. If you sell for more than the reverse mortgage amount, you get to keep the difference. If you die, your heirs can sell the home and repay the lender.
Alternatively, they can keep the home and pay the reverse mortgage balance out of their own pockets. Reverse mortgages are usually FHA insured, so if your home doesn't sell for enough to cover what you owe, neither you nor your heirs are normally responsible for paying the difference.
A Real Estate Lawyer Can Help
The law surrounding the use of reverse mortgages by older homeowners is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a real estate or estate planning lawyer.