A reverse mortgage lets homeowners aged 62 and over convert part of their equity into cash without a monthly mortgage payment. The loan is repaid when the home is sold, the owner moves out permanently, or the last borrower dies. It is a real tool and a heavily regulated one, and it is not for everyone.
How it works
The most common type is the FHA-insured Home Equity Conversion Mortgage (HECM). You can take the money as a lump sum, monthly payments, a line of credit, or a mix. Interest accrues on what you have drawn, so the balance grows over time and the equity left in the home shrinks.
What it requires
- At least one borrower aged 62 or older, living in the home as their primary residence
- Substantial equity, usually with the existing mortgage paid off from the proceeds
- A counselling session with a HUD-approved counsellor before you can apply
- Continuing to pay property taxes, insurance and upkeep
Who it suits
Homeowners who plan to stay in the home long-term, want to eliminate a monthly payment, and are comfortable leaving less equity to heirs. It suits far fewer people than the advertising suggests.