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  • Writer's pictureNick T.

How Do Reverse Mortgages Work?



What’s a Reverse Mortgage?

A Reverse mortgage is a type of loan available to homeowners. It allows an individual to convert a portion of their home’s equity into cash while still inhabiting the home. Unlike a traditional mortgage, where the borrower makes monthly payments to the lender, a reverse mortgage results in payments to the homeowner. In most circumstances, individuals must be over the age of 61 in order to qualify for a reverse mortgage. Additionally, borrowers are required to have a significant amount of equity to satisfy eligibility requirements.



Ownership/Residency

The homeowner retains ownership of the home and continues to bear the responsibility of property taxes, maintenance, and insurance. They also must continue to live in the home as their primary residence.


Loan Repayment

The loan does not need to be repaid until the homeowner moves to a new residence, sells the home, or passes away. When one of those circumstances are met, the loan must be repaid in full, including interest and fees.


Payouts And Limits

Depending on the terms of your loan, there are various payout methods you can select. You could receive payouts in the form of a lump sum, monthly payments, lines of credit, or a combination of options. If you need a line of credit, this site can help you get approved, regardless of credit history. As a homeowner, it’s up to you to select a payout method that suits your individual needs. There are limits to how much equity can be borrowed against, as determined by the government. Limits vary based on location, so check your state’s regulations. Many lenders offer free reverse mortgage calculators. These tools can help you get an idea of how much you may qualify for.


Counseling Requirements

In order to obtain a reverse mortgage, homeowners are usually obligated to undergo counseling with an approved housing counseling agency. The aim of the counseling requirement is to ensure that homeowners understand the implications and consequences of a reverse mortgage. Even if you are not required to meet with a counselor, consulting with a financial advisor can help you comprehend the terms and conditions of your loan.


Interest and Fees

Interest accrues on the outstanding loan balance, and there may be fees associated with obtaining a reverse mortgage. These fees can substantially reduce your home’s remaining equity over time.



Non-Recourse Loan

A reverse mortgage is considered a non-recourse loan. This means that the homeowner will not owe more than the value of their home when the loan is due. If the home’s value is lower than the loan balance, the Federal Housing Administration will cover the difference.

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