Reverse Basics
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Start learning the basics about reverse mortgages here.
What is a Reverse Mortgage?
A reverse mortgage is a loan on your existing property, where the bank pays you, enabling you to turn a portion of your home equity into cash. The loan is repaid when you sell your property, move, or pass away. Reverse mortgages are available to homeowners, 62 and older, who have significant equity in their homes. Most commonly, reverse mortgages are used to pay off existing mortgages, supplement retirement income, and pay medical expenses, but how you use funds from a reverse mortgage is up to you.With a reverse mortgage, you:
- Continue to own and hold title to your home. The bank does not own your property.
- Make no monthly payments while you are using your loan proceeds.
- Repay the loan when the last surviving borrower sells the property, moves, or passes away.
Background
Reverse mortgages were first established by the Housing and Community Development Act of 1987, as part of the U.S. Department of Housing and Urban Development (HUD), as a way to assist seniors with retirement. In 2009 alone, homeowners originated a record $29.9 billion in federally insured reverse mortgages.
Eligibility
All reverse mortgage applicants listed on the property title must be at least 62 years old and occupy the home as their principal residence. The property does not have to be paid off to qualify, and single family homes, condos, and certain manufactured homes may be eligible. Unlike refinancing a home mortgage or taking out a home equity line of credit, no income or credit criteria are required for a reverse mortgage.
How much money can I get from a reverse mortgage?
Loan Amount
A reverse mortgage is a loan that uses your home equity as collateral. Like any loan, the length of the term and value of the collateral determine the amount of money you are eligible to borrow. In the case of a reverse mortgage, the length of the term depends upon your age, and the value of the collateral is the market value of your home equity. The older you are and the more your home is appraised for, the higher the loan amount will be.Your loan amount will be based on:
- The appraised home value. In the case of a federally insured reverse mortgage, the maximum lending limit of $625,500 may apply. Proprietary products through private lenders may offer a higher loan amount.
- The age of the youngest borrower on the property title. A higher age will allow you to access a higher loan amount.
- The current interest rate. Learn more about interest rate indexes here.
- Your selection of a fixed rate, adjustable rate. A fixed rate loan may provide more funding than an adjustable rate.
Loan proceeds
When you receive your reverse mortgage funding, the remainder of your existing mortgage, if any, is paid off before you receive the balance of your loan proceeds.There are several available options for fund distribution. With a fixed rate reverse mortgage, funds are distributed only in a single, lump sum amount.
With a variable interest rate, you may choose to receive your loan proceeds:
- In a single, lump sum amount.
- As a regular monthly cash advance.
- As a flexible credit line account, held in reserve, that lets you customize when and how much is paid to you.
- As a combination of these three distribution methods.
More information about loan amounts
To learn more about how your loan amount is calculated, see our page on reverse mortgage math. Or, see what loans may be available to you using our reverse mortgage calculator. If you have additional questions, call us at 1-800-4-MONEY-4.
What else should I know about reverse mortgages?
Federally insured reverse mortgages
Most reverse mortgages are insured by the U.S. government. These loans are called Home Equity Converted Mortgages and protect the borrower's loan proceeds.Your responsibilities
When you receive a reverse mortgage, you have a responsibility to live in your home as your primary residence and make necessary home repairs. You must also maintain your homeowner's insurance and pay property taxes. Golden Gateway Financial offers an automatic payment service financed through the reverse mortgage so these critical bills are never missed.Non-recourse loan
A reverse mortgage is a non-recourse loan, which means the total amount owed at the end of the loan can never exceed the current value of the property. The borrower and the borrower's heirs are always protected in a situation where the loan value is greater than the proper value. This protection is guaranteed by the Federal Housing Administration (FHA) and paid by you and other reverse mortgage borrowers.Downsizing into a smaller home
If you are considering moving, you may be eligible for a reverse mortgage for purchase. A reverse mortgage for purchase may allow you to pay off a new home and release retirement income tied up in home equity at the same time. Try our downsizing calculator to see how a reverse mortgage for purchase could help you downsize homes.
How much does a reverse mortgage cost?
You will have the opportunity to review a full cost estimate before you apply for a reverse mortgage. Most fees can be financed by the reverse mortgage, and they include charges for services similar to a traditional mortgage, such as the interest rate, fees, and closing costs. In general the more money you borrow, and the longer you borrow it for, the more interest you will owe.Paying back a reverse mortgage
Reverse mortgages do not have to be paid back until the last surviving borrower sells the house, moves, or passes away.- The maximum amount you will owe is the current market value of the house, even if the money you have received exceeds your home value. This protection is guaranteed by the Federal Housing Administration.
- You will never pay more than the amount you owe plus interest when the reverse mortgage balance is due. Any remaining equity is yours to keep.
- When you pass away, your heirs may choose to keep the house by converting the reverse mortgage to a traditional mortgage. Your heirs may also sell the home to pay the balance of the reverse mortgage loan and keep any sales proceeds that exceed the reverse mortgage loan balance.
