Whether seeking money to finance a home improvement, pay off a current mortgage, supplement
their retirement income, or pay for healthcare expenses, many older Americans are turning
to “reverse” mortgages. They allow older homeowners to convert part of the
equity in their homes into cash without having to sell their homes or take on additional
In a “regular” mortgage, you make monthly payments to the lender. But in
a “reverse” mortgage, you receive money from the lender and generally don’t
have to pay it back for as long as you live in your home. Instead, the loan must be repaid
when you die, sell your home, or no longer live there as your principal residence. Reverse
mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still
meet their financial obligations.
To qualify for most reverse mortgages, you must be at least 62 and live in your home. The
proceeds of a reverse mortgage (without other features, like an annuity) are generally
tax-free, and many reverse mortgages have no income restrictions.
The three basic types of reverse mortgage are: single-purpose reverse mortgages, which are
offered by some state and local government agencies and nonprofit organizations;
federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages
(HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and
proprietary reverse mortgages, which are private loans that are backed by the companies that
Single-purpose reverse mortgages generally have very low costs. But they are not available
everywhere, and they only can be used for one purpose specified by the government or
nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In
most cases, you can qualify for these loans only if your income is low or moderate.
Reverse mortgage loan advances are not taxable, and generally do not affect Social Security
or Medicare benefits. You retain the title to your home and do not have to make monthly
repayments. The loan must be repaid when the last surviving borrower dies, sells the home,
or no longer lives in the home as a principal residence. In the HECM program, a borrower can
live in a nursing home or other medical facility for up to 12 months before the loan becomes
due and payable.