What is a reverse mortgage?

When you have a mortgage, you have to give money back to the bank. In a reverse mortgage, the bank gives money to you. It sounds like a great system, but of course you aren't really getting something for nothing. The reverse mortgage is a type of loan, and eventually you or your heirs will need to repay it.

To be eligible for a reverse mortgage, you must be at least 62 years old. You must own your own home, and live in it at least 50 percent of the year. The idea behind a reverse mortgage is that you will receive regular payments until you die, at which time, the house will be sold and the debt (plus interest) repaid to the bank. If the house is worth more than what is owed to the bank, your heirs will receive what is left. You will, however, have to repay if you sell the house yourself, or if you move out of it. If your heirs choose not to sell the house, they will need to repay the bank in some other way.

It's hard to consider leaving the home you've lived in for many years, both for sentimental reasons, and because of the difficulty of moving. For these reasons, a reverse mortgage may be a good option for increasing your income in your later years. Nonetheless, it's worth checking whether it will be financially more sensible (for both you and your heirs) for you to sell your house. The capital may well allow you to buy or rent a smaller home (with fewer upkeep costs) and have enough left over to cover your ongoing expenses, without having to deal with any kind of debt or loan.

If you are considering a reverse mortgage, be aware that only Home Equity Conversion Mortgages are federally guaranteed. Some state or local government reverse mortgages exist at reasonable rates; however, these may have more limited eligibility.

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