What Is a Reverse Mortgage Loan?

Reverse mortgages let homeowners tap in to the value of their homes and receive money from their lenders. The money can be withdrawn in a single lump sum, received in monthly payments, or take the form of a line of credit, depending on the arrangements made in the reverse mortgage agreement.

You must meet several conditions before you can qualify for a reverse mortgage. You must be 62 or older and own your own home, condominium, or townhouse, and live in it as your primary residence. Co-op owners typically will not qualify for a reverse mortgage. Most lenders also require that there be no other debt against the home. If you still owe some debt on your home, you can arrange to pay it off with some of their reverse mortgage payments.

The amount of the reverse mortgage is based on the value of the home, so your credit history is not a significant factor. The age of the borrower, interest rate, and loan fees will also factor into the amount of the reverse mortgage.

As long as you are living in the house, maintaining the home, and paying the property taxes and insurance, you do not need to pay back the loan. In addition, payments from your reverse mortgage will not affect your ability to collect Social Security, Medicare, or pension benefits.

The initial mortgage is no longer being paid off, but the house is acting as security against the loan. You do not, however, give up the title or deed to the home at any point, and the loan amount can never exceed the value of the home. The money you receive is tax free, and you can use it as you see fit. Many people take out reverse mortgage loans to pay for home repairs, taxes, insurance payments, or medical bills. You can also use some of the money you receive to pay the fees associated with the loan.

There are many sources of reverse mortgages, including the Federal Housing Administration and Fannie Mae, who offer Home Keeper Loans which, in major markets, can now exceed $350,000. The National Reverse Mortgage Lender’s Association (NRMLA) provides details on the different types of reverse mortgages. TheAARP also offers a reverse mortgage page, which includes information about the various loans offered.

Just because you are eligible to receive a reverse mortgage doesn't necessarily mean it would be the right solution for you. Do plenty of research, talk to your family and a financial expert, and look into all your other options before you commit to any loan program.