Reverse mortgage basics

What is a reverse mortgage?

However, unlike a traditional mortgage, borrowers do not make monthly mortgage payments. The loan is repaid when the borrower no longer lives in the home. Interest and fees are added to the loan balance each month, and the balance grows over time.

With a reverse mortgage you are still required to pay property taxes and homeowners insurance, use the property as your principal residence, and keep the house in good condition.

What people use it for

• Extra cash for medical or living expenses
• Paying off an existing mortgage, which removes that monthly payment
• A lump sum, monthly payments, a line of credit, or a combination
• Staying in the home rather than selling to access equity

Two things worth knowing up front: you remain the owner of the property, and because these are non-recourse loans, your heirs will never owe more than the home is worth.

What it takes to qualify

There are two primary criteria. You must be at least 62 years old, and you must own a significant amount of equity in your home. The specific percentage varies by lender, but you will typically need around 50 percent.

• Your age. You must be at least 62. If you would like to add your spouse as a co-borrower — and you should if you can — they must be 62 as well.
• No credit score or income requirement. Lenders do, however, complete a financial assessment to confirm you can keep up with property taxes and insurance.
• Counseling is mandatory. HUD requires every prospective borrower to complete a session with a HUD-approved counselor.
• Upfront costs. You will pay an origination fee and an upfront mortgage insurance premium, both of which can usually be financed into the loan.

Some privately insured programs are available to homeowners younger than 62 in certain states. If you are between 55 and 62, ask us whether one of those applies to you.