Reverse Mortgage

What is a reverse mortgage loan?

A reverse mortgage is a financial product that allows senior homeowners to borrow against their home equity, without having to relinquish their ownership of the home's title. Available in the United States and numerous other countries, reverse mortgage loans free up capital locked into the home, allowing seniors to access cash in the form of a lump sum payment, or through ongoing payments of specified amounts. If these payments are given annually, the arrangement is usually known as a "reverse annuity mortgage." This money can be used for any purpose the homeowner sees fit -- traveling, retirement income, investing and home improvements are among the most common applications for reverse mortgage proceeds.

How to Qualify for a Reverse Mortgage Loan

You should always consult local financial institutions for reverse mortgage information that is specific to your area. In the United States, most reverse mortgage lenders stipulate the following requirements:

  • You must be at least 62 years old
  • You must be the principal owner of the house
  • You must have enough equity built up in your home (specifics vary from lender to lender)
  • The property must be a single-family home, a complex with no more than four units, a manufactured home or a condominium
  • While it is not a requirement, it is also recommended that you plan to stay in your current home longer than three years; otherwise, fees and costs might make another option, such as a second mortgage, less expensive

When you take out a reverse mortgage, you are only charged interest on the money you borrow, when you actually borrow it. For example, if you take out a reverse annuity mortgage, interest is only charged on the annual payments which have been dispersed, not the total value of the reverse mortgage loan. A reverse mortgage calculator can help you figure out how much interest you will have to pay, and when you will have to pay it, and it's a tool that will help you manage your reverse mortgage properly.

In certain circumstances, you can qualify to get a reverse mortgage loan even if you have not completely paid off your first mortgage. Some lenders also offer second and third reverse mortgages to customers who wish to access more of their home equity.