What is a Reverse Mortgage?

What is a Reverse Mortgage?

A reverse mortgage is available to homeowners who are 62 years or older. A reverse mortgage allows homeowners to convert home equity to supplemental retirement income. Instead of paying a monthly mortgage, the lender makes payments to the borrower. This type of loan is paid off when the home is sold or is vacated.

What are the requirements for a Reverse Mortgage?

The borrower must meet these certain requirements and responsibilities, as outlined by the National Reverse Mortgage Lenders Association:

• The borrower must be 62 years or older.
• The reverse mortgage must be the primary lien on the home.
• The borrower must use the home as their primary residence.
• The borrower must remain current on taxes, homeowners insurance, and any other mandatory obligations.
• Borrowers are responsible for repairs and basic maintenance.
  

Pros of a Reverse Mortgage

A reverse mortgage is an option that allows retirees to continue living in their home with no monthly mortgage payments, and the income received can be used for anything. The borrower remains the owner of the home and title, as long as all responsibilities are fulfilled. In addition, because the money is recognized as a loan and not income, proceeds are non-taxable. When paying back the loan, the borrower or heir will never have to pay more than what the home is appraised for.

Cons of a Reverse Mortgage

Reverse mortgages can provide additional income to those over 62, but they are not always the best option. There can be higher setup costs for reverse mortgages than other types of loans, and there are ongoing insurance (MIP) charges. In addition, if you plan on leaving the home as an inheritance, it will decrease the inheritance amount for your heirs. You will also want to check to see how the mortgage affects programs such as Medicaid or SSI to determine if it is a good choice for you.

Finding the best loan for your personal needs can be overwhelming. New England Home Mortgage strives to help you understand all your options and find the best fit for your financial situation. Read an overview of our mortgage options here, or contact us today for an in-person appointment.