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A Reverse Mortgage is a method of receiving an income based on the equity in your house (the difference between what you owe and the market value.)

A Reverse Mortagge is the opposite (reverse) of a regular mortgage.

  • With a regular mortgage, you borrow a sum of money. The amount of the debt decreases as you pay back the loan in installments according to an agreed schedule. The loan is secured by property: if you do not repay the loan as agreed, the lender can sell the property to recover the amount of the debt.
  • On the other hand, a reverse mortgage is a way to receive money from your home without making monthly payments or selling it.  With a reverse mortgage, you receive an income, a sum of money, a line of credit or a combination of income, money and line of credit.  As a general matter, a loan under a reverse mortgage does not have to be repaid until one of the following events occurs: you move out of your house for more than a year, the house is sold, or the last borrower dies. At the death of the last borrower, the heirs can pay off the loanthrough the use of a traditional mortgage or by refinancing and keep the house or sell it to pay off the debt.

Reverse mortgages are for people who are age 62 or over who own a home. From the lender's point of view, your health condition is not one of the factors considered when determining whether to give you a reverse mortgage or how much cash you will receive. 

Because of the high costs involved, from an economic point of view, a reverse mortgage may not be a good economic choice for a person with a short life expectancy. However, if a reverse mortgage allows you to stay in your house, it's up to you whether quality of life trumps economics. 

A reverse mortgage is particularly good for a person who has few assets other than a home.

Like regular mortgages, reverse mortgages come with a choice of interest that is fixed (a fixed-rate) or adjustable (an adjustable-rate).

Several  reverse mortgage loan programs are available.

  • HUD (US Department of Housing and Urban Development) offers a Home Equity Conversion Mortgage (HECM). 
  • Fannie Mae Home Keeper Mortgages are available through banks and mortgage companies.

The federal government requires borrowers to attend a counseling session before entering into a Reverse Mortgage.

For additional information about Reverse Mortgages, please see:


  • If a spouse or partner lives with you and is not listed as a borrower on the mortgage, he or she can continue to stay in the home after your demise as long as it is still his or her primary residence. 
  • A HECUM Reverse Mortgage can also be used to purchase a new home. For more information, click here.
  • If your children are in the right financial position, consider a private reverse mortgage - a transaction in which a family member replaces the bank. For example, the person can agree to give you a monthly check and pay for any major home repairs. You agree to repay the loan plus interest and any money spent on maintenance. If the loan is not paid before, it is payable on death. There will be less up-front costs and fewer ongoing costs. Interest can be lower than what a bank would charge, subject to an IRS.minimum.  Do not attempt to create this type of transaction without the advice of a lawyer or an accountant. If you don't have one, click on the link for information about choosing a lawyer or an accountant
  • For additional ideas about dealing with a financial crunch, click here. For instance, if you have life insurance, you may be able to accesss money from a policy now, while you are still alive. For additional information, click here.

What Is A Reverse Mortgage?

A reverse mortgage is a loan from a bank or other lending source that is secured by your home. It is called a "reverse" mortgage because instead of paying the bank like you do with a regular mortgage, the bank pays you, the home owner. The money the bank pays you is a loan.

Like a regular mortgage, the loan is secured by the equity in your house. ("Equity" is the difference between the amount you own on your home and the fair market value).

With a reverse mortgage:

  • The home must be your primary or principal place of residence.
    • Depending on the circumstances, the home can be single-family, one to four unit dwellings, a condominium, or a planned unit development.
    • Co-ops and mobile homes are generally not eligible.
  • The amount that you can receive is based on the value of your home, interest rates, the lender's policies, and your age. Your health is not relevant. Interest is adjustable.
  • There are no limits on what you can do with the money.
  • You continue to live in the home and have title (ownership) to it. The lender never owns the home.
  • You continue to pay property taxes and insurance. You also are required to continue to maintain the home.
  • The loan balance (the amount you owe) increases over time:
    • Each time you access money from a line of credit or receive a monthly payment.
    • Due to interest on the outstanding balance and (possibly) monthly fees.
  • No repayment of the loan is required as long as you continue to live in your home, maintain it, and don't owe more than the total authorized amount.
  • The loan is repaid when you (or the last surviving spouse) permanently moves or dies. At that point, you or your estate pays back the loan by either using private funds or seling the home. After the loan is repaid, any remaining cash goes to you or your estate.

Generally, the legal obligation to pay back the loan is limited to the value of the home. (The amount owed never exceeds the value of the home.) This feature, called "non-recourse" in legalese, means the lender can only look to the home for repayment of the loan, and not to the borrower, the borrower's other assets or the borrower's heirs. The heirs are only responsible for repayment if they wish to keep the home, in which case the reverse mortgage can usually be satisfied with a new conventional first mortgage obtained by the heirs.

What Steps Should I Take Before Obtaining A Reverse Mortgage?

Step 1. Consider the alternatives to getting money other than from a reverse mortgage. For instance, consider:

  • A Home Equity Loan or conventional mortgage
  • Sell the house and move into a less expensive house
  • Rent part of the house for an income
  • Other potential sources of raising funds from your own assets or from family or friends. (See the documents in "To Learn More.")

Step 2. Contact at least two lenders (one of which is HUD) and compare mortgages.

Each lender must provide a print out that shows how the numbers would work. If requested, each lender should also be able to provide a comparison among the different plans it has available.

If you want to crunch numbers on your own, it may be helpful to look at the calculator at:

To determine your home's value, you can get an instant "home valuation report" at offsite link. Also check the following web sites which estimate the value of most homes in the U.S.. Keep in mind that the valuations may not be accurate. They do not send out home appraisers. Instead, the sites merely gather information about your residence and nearby properties. For example, the sites do not take into account recent renovations in either yours or comparable homes.  They also do not generally work for very expensive, very inexpensive or unique homes. Some of the better known sites:

Step 3. Speak with a qualified counselor.

Anyone considering a HUD Reverse Mortgage must obtain counseling from a HUD-approved counseling agency. To locate one near you, call 800.569.4287 or search at offsite link

  • Preferably look for a counselor who works on a fee only basis.
  • You shouldn't be pitched financial products to buy with the proceeds. If you are, review the suggestions with a good deal of skepticism. The idea of a reverse mortgage is to help you, not a salesman.

Step 4. Consider adding your spouse

If you are married, or living with a partner, naming only yourself on a reverse mortgage puts the other person at risk of losing the house if you die because the mortgage is automatically payable on death. The other person would have to pay off the loan to stay in the house. This triggering effect will not happen if you are both on the mortgage.

What Is Necessary To Qualify For A Reverse Mortgage?

Since you don't have to make payments with a reverse mortgage, your income and credit history are usually not evaluated, except for federal liens if you are getting a federally insured reverse mortgage.

Generally you must:

  • Be at least 62 years old.
    • If the home is jointly owned by more than one person, all owners must be age 62 or older.
    • If one owner is younger than 62, it is possible to qualify by taking the person's name off the deed. However, if the older person enters a nursing home or dies, the property will have to be sold - which leaves the younger person in a difficult situation.
  • Own your home.
  • Occupy the property as your primary residence (live in your home more than half the year.)
  • Have equity in your home. It doesn't matter if you have a mortgage. The key is whether there is equity (the difference between debt on the property and the market value.)
  • The home is a single-family property, 2-4 unit building, federally approved condominium, or planned unit development. Cooperative apartments and mobile homes generally do not qualify.
  • There is no maximum on the value of the home.

How Much Money Can I Get From A Reverse Mortgage?

The amount of the mortgage depends on:

  • The age of the youngest borrower. (No one's health is considered).
  • The current interest rate.
  • Your equity in the home or the FHA insurance limit, whichever is lower. Your equity is the difference between the amount of any outstanding debt secured by the house (such as a mortgage) and its current market value.
  • Loan fees.

The older you are, the greater the amount of money you will be able to receive as a Reverse Mortgage. The maximum amount for a reverse mortgage is set by federal law.

For an approximation of the gross amount you can receive as a Reverse Mortgage, see offsite link. (Keep in mind that "gross" is the amount before expenses are deducted.)

The net amount you receive depends on loan costs, which are expensive. Costs can include:

  • An origination fee.
  • An application fee.
  • Closing costs (like a traditional loan)
  • Premium for Insurance (that protects the lender if you outlive the value of your home.)
  • A monthly servicing fee.

NOTE: Even if all you can borrow as a Reverse Mortgage is enough to pay off your current mortgage, or to receive payments equal to the payments due on your current mortgage, the loan may be worthwhile because it will reduce your monthly expenses.

How Can I Receive The Loan Proceeds?

You can take the loan in a variety of ways, including:

  • A lump sum cash advance.
  • Monthly payments.
  • A credit line that lets you take cash out as needed.
  • A combination of the above.

Homeowners whose circumstances change can restructure their payments for a nominal fee.

The stream of income from a Reverse Mortgage can be either open-ended or for a fixed term.

  • Open-ended. With an open-ended Reverse Mortgage, you receive monthly advances for an open period of time until a specified event occurs. For example, you receive the monthly payments for life. Payments stop at death.
  • Fixed-term. In a Fixed-term Reverse Mortgage you receive monthly advances for a fixed number of years.

The fixed-term type of approach can provide larger advances than open-ended Reverse Mortgages but the term is fixed. Because mortgage interest rates are generally variable, a fall in interest rates could reduce the monthly amount of income you receive.

Note: If you have a shortened life expectancy due to a health condition and want to use a Reverse Mortgage as a source of continuing income:

  • Keep in mind that you are not a statistic.
  • Expect that a loan for life will be based on the life expectancy of someone your age and possibly sex, rather than on your health condition. You may be able to obtain more money per month on a fixed-term basis.

Fixed Rate Reverse Mortgage versus An Adjustable-rate Reverse Mortgage

With a fixed rate reverse mortgage:

  • You must take all the money when you take out the loan.
  • Interest charges on the whole amount start immediately.
  • The interest charges are set for the life of the loan.

With an adjustable rate reverse mortgage:

  • You can also take all the money when you take out the loan. However, you are not obligated to. You can also take the money in montlhy payments, or through a line of credit that permits you to take money as necessary.
  • Interest only starts when you take money.
  • Interest rates can fluctuate - perhaps greatly depending on the terms of the loan. Rates have been known to rise by as much as 10 percentage points over the life of a loan.

How Do I Pay Back A Reverse Mortgage?

A reverse mortgage becomes due when:

  • You receive the maximum approved amount of the loan OR
  •  When you move out, sell your home or die, 

When the mortgage is due, the mortgage can be paid off, refinanced or the house sold.

While interest is added to the amount of money you receive, interest on a Reverse Mortgage is not payable until the house is sold. The interest is tax deductible in the year of the sale.

What Obligations Does A Borrower Have While A Reverse Mortgage Is Outstanding?

  • Maintain the home in good condition.
  • Pay the real estate taxes.
  • Keep homeowners insurance in force.

Lenders can usually demand repayment if you don't keep up the home. They generally inspect houses with a Reverse Mortgage periodically.

What Are Some Of The Pitfalls To Watch Out For When Considering A Reverse Mortgage?

There are many potential downsides to using a Reverse Mortgage to be considered before signing on the dotted line:

  • Your home is likely to be valued conservatively. The mortgage could be based on less than what your home is really worth.
  • You will still be responsible to pay property taxes, homeowners insurance, and keep up the house. 
    • If you do not keep up with the payments, there could be a foreclosure on the house.
    • NOTE: You can set aside part of the proceeds to pay the taxes, insurance premiums and maintenance
  • You can lose out on the home's appreciation if the lender eventually takes title to it.
  • As the equity in your home decreases, there is less money available for emergency purposes.
  • If you obtain a Reverse Mortgage and then change your mind, it may be difficult to repay the loan because the amount of the debt increases quickly. Interest compounds upon interest during the life of the loan.
  • You may use up all of your equity and have nothing left for later years.
  • The high cost of obtaining a Reverse mortgage. See the next section.

NOTE: If your spouse/partner is not named on the mortgage, he or she could lose the house upon your death. Both spouses should be named on the mortgage.

How Much Does A Reverse Mortgage Cost?

The costs of a Reverse Mortgage are not obvious because you do not pay most of them out-of-pocket when you take out a Reverse Mortgage. As a general matter, the cost of appraisal is the only cost that may need to be paid when the Reverse Mortgage is taken. Remaining costs are usually added to the amount of the debt. 

Costs include:

  • Closing costs: The same kind of closing costs you encounter when you purchased your home, such as:
    • Appraisal fees (to determine current market value of the home)
    • Title fees (to prove you own title to the house)
    • Credit report fees (to verify your credit, including whether there are liens or judgments against you)
    • Flood certification fees  (to detrmine whether the property is in a designated flood plane)
    • Legal fees (including the cost of preparing documents)
    • Recording fees (for recording the mortgage)
    • Similar expenses
  • "Points" also known as "Origination fees" (fees for creating the loan) which can be up to 2% of the loan amount for the initial $200,000 borrowed and 1% of the balance.
  • The cost of repairs to your home that the lender might require.
  • Interest.
  • The mortgage insurance premium which is a percentage of the value of the home.

NOTE: As with any other loan or mortgage, be sure to take all the costs into consideration when comparing offers.

What Is The Tax Situation With Respect To A Reverse Mortgage?

The money you receive

There is no tax on the money you receive in a Reverse Mortgage because it is a loan. Loan proceeds are not taxed.


Interest that you pay on the loan is deductible – but not until it is actually paid. With a Reverse Mortgage, you don’t pay the interest until the end of the loan – but interest isn’t deductible until then.

What Effect Would A Reverse Mortgage Have On My Benefits?

The income you receive from a Reverse Mortgage would be treated the same as any cash you receive. If there are income or asset limits to a particular benefit, the amount of the benefit may be affected. For example, the proceeds can affect eligiblity for Supplemental Security Income (SSI) and Medicaid. It will not affect Medicare or Social Security Disability or Social Security Retirement income.

NOTE: If you take a line of credit under the Reverse Mortgage rather than cash, the line of credit as such should not affect your ability to receive benefits which are needs based. The situation of course changes when you actually receive the cash.

Counseling Session And Other Consumer Protections

A Counseling Session

The government requires borrowers to attend a counseling session before entering into a Reverse Mortgage. The session can be in person or on the telephone.

During the session, the counselor will explain how the Reverse Mortgage works. You will have an opportunity to ask questions.

If the counselor tells you any information that is not in writing, ask him or her to put in in writing for your future reference.

Lenders have lists of counselors approved by the Department of Housing and Urban Development (HUD). A lender should not recommend a specific counselor. If you would like to locate a counselor on your own, following is a list of  HUD-accredited counseling services for assistance. To  find a counselor in your area, go to offsite link.  Click on "Consumer Resources" or contact HUD, offsite linktel. 800.569.4287.

National Council on Aging – (800) 510-0301
CredAbility – (888) 395-2664
Money Management International -(866) 765-3328
National Foundation for Credit Counseling- (866) 363-2227
NeighborWorks America – (888) 990-4326

Other Protection

You have up to three days of signing the papers to back out of the loan.

Using A Reverse Mortgage To Purchase A Home

People 62 or older can use an HECM (the Federal Hosuing Administration's reverse-mortgage program) to purchase a single-family home, a condominium or a small multifamily residence. 

The government noticed that many older people move into a smaller residence as they age and then get a reverse mortgage. To do that means that there are two sets of closing costs: the closing costs for purchasing the house with a morrtgage, and a second set of closing costs when taking out a reverse mortgage. By using a HECM to purchase a house, there is only one set of closing costs.

To use this alternative, you must have cash on hand to pay the difference between the amount of the HECM proceeds and an amount equal to the sale price of the house plus closing costs. In a very real sense, your down payment becomes the equity which justifies the reverse mortgage loan.

Instead of making payments, you collect monthly payments from the equity on a tax-free basis as long as the home is your principal residence.

There is no requirement that you sell a previous home. If you can economically, you can rent the previous home for additional income.

Under the plan, you can choose to take the money either in monthly payments, as a lump sum, a combination of the two or even in a line of credit that you can access whenever you need cash.

There are eligibility requirements. Good health is NOT one of them. However, you cannot be delinquent on any federal debt, and you will have to go through consumer information counseling.

Consider all options before pursuing this alternative. Keep in mind the high costs of reverse mortgages (and the complexity of the transaction). 

How Do I Locate A Source For A Reverse Mortgage?

Most Reverse Mortgage loans are issued by HUD as Home Equity Conversion Mortgages (HECM). Fannie Mae and the Financial Freedom Senior Funding Corp. also offer Reverse Mortgages.

If you are interested in a reverse mortgage:

When comparing loans from the two sources, keep in mind that a benefit of a HECM loan is that the line of credit can continue to grow.

How Do I Obtain More Information About Reverse Mortgages?

For additional information about reverse mortgages, contact:

For calculators to get an estimate of costs and loan proceeds, Golden Gateway Financial offsite linkhas a calculator to provide an estimate of costs. So does AARP. offsite link