What is a Reverse Mortgage?

Reverse mortgages are home equity loans for senior homeowners. The loan does not require any monthly payments since it is pegged on the value of their property. Payments are due when the owner moves out or dies. For many people who choose this option, it is largely a last resort to them. If planned well, reverse mortgages can be an attractive retirement tool for its beneficiaries. The first mortgage of this nature that was backed by the federal government was issued in 1989. It is open for people who are at least 62 years old.

How Does It Work?

In a reverse mortgage, the loan taps into the equity held in your property. These payments do not attract any taxation. Provided that you still reside on the property, there is no obligation to pay back the loan. However, loans must be repaid if the house is sold by owner, spouse, heirs, estate or relative. The amount advanced to borrowers increases with seniority and is based on the youngest spouse’s age. Borrowers have the option of receiving lump sum pay-out, monthly installments, or a line of credit.

While borrowers do not need to worry about payments as they live in the house, the payment is due as soon as both spouses pass away, or cannot continue living in it. In some cases, heirs sell off their property and the first proceeds go toward meeting the loan obligations. If the home value is less than the advanced loan, all the proceeds of the sale go towards the loan and it is considered paid.


  • Borrowers have no obligations to make any monthly payments.
  • Advanced loans can settle sudden bills or pay debts.
  • The money could be used to pay the existing mortgage.
  • The senior can improve their cash flow significantly.


  • Reverse mortgages are expensive.
  • Borrowers have to maintain home insurance, keep the property maintained, and pay relevant taxes.
  • It makes it complicated for those who wish to leave the house with the family members.

What Next?

If you have chosen to explore the option of reverse mortgages, there are plenty of options available. You can have the loan amount transferred as a lump sum payment, as a line of credit, or as monthly installments. The line of credit allows you to choose the amount you want and when to receive it. The Federal Housing Administration has a limit of $636,150 or a lower appraised value. In any case, you must own the home or have a low mortgage balance to qualify. Finally, the home in question must be your primary residence.