Reverse Mortgage Definition

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Additional tax-free income can be used for any purpose
Choose to use a portion or all of your home equity
Pays down / eliminates existing mortgage
Retain your home ownership, pass down your home & remaining equity

Is a reverse mortgage right for you? Get the Definition of a Reverse Mortgage before you make a decision.

Reverse Mortgage Definition

A reverse mortgage is also known as a lifetime mortgage. It's a loan for homeowners ages 62 and older. It works by releasing the equity built up in the home as one lump sum, monthly payments or a line of credit. The homeowner is not required to pay the loan back until they pass on, permanently leave the home or sell the home.

With a regular mortgage, the borrower pays monthly and the equity built up in their home increases with each payment. With a reverse mortgage the borrower no longer has to make mortgage payments. Instead, the debt on the property increases each month. A reverse mortgage behaves truly as it sounds, reversed!

How does this benefit the homeowner? For many homeowners, their greatest asset is the equity they've built up in their home. A reverse mortgage enables them to take advantage of this in a way they may have never otherwise been able to.

The loan is tax-free as the IRS does not consider it to be income. Also, it does not generally affect social security or Medicare benefits. However, some borrowers of Medicaid, SSI or other public assistance may only have a certain amount of liquid assets at one time to remain eligible for the program. In that case, the funds will have to be exhausted in the same calendar month so it is not considered liquid assets.

Who is Eligible for a Reverse Mortgage:

The youngest homeowner should be 62 years of age or older. There are no medical requirements, credit or income minimums. You can use the proceeds of a reverse mortgage for anything you'd like. Most property types are eligible besides mobile homes having special requirements.

Reverse Mortgage Counseling:

Like with any loan, it is important to have an understanding of the cost of borrowing before applying. Each applicant must be counseled by an approved HUD (Department of Housing and Urban Development) Counselor before moving ahead with a reverse mortgage. Here the applicant learns of the total cost of borrowing and how the loan is repaid. The counseling typically costs between $100 and $125 with some agencies being able to have the fee covered by federal grants. The costs of a reverse mortgage generally consist of mortgage insurance, an origination fee, title insurance, title, attorney and county recording fees, real estate appraisal and a survey.