A reverse mortgage enables homeowners 62 & older to convert home equity into tax-free cash without selling their home. A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.
However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you can use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
- You do not give up title to your home.
- You make no monthly mortgage payments if you occupy your home as your primary residence, maintain your property, and remain current on the property taxes, homeowner’s insurance and HOA dues.
- No prepayment penalties.
- Although the loan is not due and payable until you permanently move out of the home, it can be paid off at any point without prepayment penalties.
- There is no time limit to how long the homeowner(s) may remain in the property. If one or both homeowners remain in the home as the primary residence and remain current on the property taxes, homeowner’s insurance and HOA dues, neither you nor your spouse will be required to leave or sell the home.
- Your home does not need to be free and clear. Elimination of the current mortgage is one of the most common reasons seniors apply for a reverse mortgage.
- You, or your heirs, retain 100% of the remaining equity upon the sale of the home.
The concept of a reverse mortgage originated in the mid 1960’s. In 1989, recognizing the incredible financial benefits this program offered, HUD was asked to take control of the program, eliminate some of the risks and insure the loans.
To be eligible for a reverse mortgage, borrowers must meet three essential requirements:
- Be at least 62 years of age
- You must live in the home as your primary residence. A reverse mortgage cannot be used for a second home or investment property.
- You must have paid off much or all your traditional mortgage.