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Reverse Mortgage: How does it Work?

Learn About HECM Reverse Mortgages
Jon Pedley
UpdatedMay 5, 2016
Key Takeaways:
  • A reverse mortgage is a type of home loan for seniors ages 62 and older.
  • Reverse mortgage loans allow homeowners to convert their home equity into cash income with no monthly mortgage payments.
  • The most common type of reverse mortgage is a HECM - Home Equity Conversion Mortgage.

A reverse mortgage is a great loan option for many seniors. Whether you’re looking for additional monthly income, a lump sum of cash, or to have no more monthly mortgage payments, a reverse mortgage may be right for you.

What is a Reverse Mortgage? Is it Right for Me?

You have to be at least 62 to get a reverse mortgage and have substantial equity in your home. A reverse mortgage converts a portion of a home’s equity into cash. You can remain in their home and receive either tax-free supplemental income or a lump sum without the risk of losing the title to their home.

You won’t have a mortgage payment for as long as you stay in the home as your primary residence. However, you must remain current on your property taxes and home insurance and maintain your home, or you can lose your home.

Your loan balance is repaid from the sale of your home after you no longer use it as your primary residence or pass away. If your house is worth less than you owe, your lender can’t come after you or your heirs for any money.

What is a Home Equity Conversion Mortgage (HECM)

The most common form of a reverse mortgage is commonly referred to as a Home Equity Conversion Mortgage (HECM). A HECM is federally insured by the FHA (Federal Housing Administration) and HUD (US Department of Housing and Urban Development).

Before taking out a reverse mortgage, you must receive counseling from a government-approved agency. The counseling helps protect you from taking out a reverse mortgage when it is not the right choice and assists you in understanding how the fees you will pay are charged. Pay close attention during your counseling session to ensure that you know the risks of a reverse mortgage and the rewards.

Learn More about Reverse Mortgages

Use to learn more about reverse mortgages' pros and cons and see what it takes to qualify for a reverse mortgage loan. Leave a comment or ask about reverse mortgages and read answers to questions that other readers have asked.