Reverse Mortgage

A reverse mortgage is a type of loan used by senior citizens as a way of converting their home equity (the value of their home, minus the amount of mortgage(s)) into a cash payment (or monthly payments, credit line) while retaining ownership of their property. To qualify for a reverse mortgage in the United States, you must be at least 62 and have paid off all or most of your home mortgage.

Reverse mortgages allow the home owner to continue living in the home for the rest of their life without being required to repay the loan. In exchange, the lender receives a substantial fraction of the home's equity. In the United States, the proceeds of the loan are tax-free, there are no minimum income requirements, and for most reverse mortgages, the money can be used for any purpose. However, reverse mortgages also can be more costly than other types of refinance or standard mortgage loans.

Income or savings is not considered by lenders when granting reverse mortgages, and no medical tests or medical histories are required. The amount you can borrow depends on your age, the equity in your home, the value of your home, and the interest rate. Reverse mortgages administered by the government may have other requirements as well.

In the United States, with a reverse mortgage, you can be paid in a lump sum, in monthly advances (payments), through a line of credit, or a combination of all three. The the tax free loan payouts, generally do not affect Social Security or Medicare benefits, since they are an asset exchange (giving up part of your home equity in exchange for cash), not income. However, you should keep in mind that reverse mortgages can have more costs than traditional loans. They also may use up all or some of the equity in a home. For these reasons, it's very important to compare reverse mortgage lenders and be aware of their requirements and risks before applying for this type of loan.