To be eligible for most reverse mortgages you must be at least 62 years old.
- Understand the pros and cons of a
reverse mortgage. - Before you act, get advice from a trusted
financial professional.
To be eligible for most reverse mortgages you must be at least 62 years old.
For more detailed information, we recommend that you visit the website of the AARP.
A reverse mortgage is a home loan that you do not have to pay back, either monthly or in a lump sum, for as long as you or your co-borrower continues to live in your home. All borrowers must be at least 62 years of age to qualify for most reverse mortgages. A reverse mortgage lets you convert the equity in your home into cash, without having to sell your home, or to repay the loan each month.
You can receive the money from a reverse mortgage in several ways:
No matter how this loan is structured, you typically don’t have to pay anything back until you die, sell, or permanently leave your home.
Normally, when you qualify for a loan, the lender checks your income and your assets before approving you. But with a reverse mortgage, since you don’t have to make monthly repayments, the lender doesn’t look at income and assets. You can have a very modest income and still be able to qualify for a reverse mortgage.
The federally-insured Home Equity Conversion Mortgage (HECM) is far and away the most popular program, with the loan amount, interest rate and fees regulated by the government. The disadvantage to HECM for many residents of northern California is the limitation on loan amount. Regardless of property value, HECM loan amounts can not currently exceed $362,790. This may not meet the needs of someone who is sitting on $1 million plus of home equity. Although there are other reverse mortgage programs with higher loan amounts, they are expensive, with high closing costs and interest rates.
Using careful planning and conservative assumptions about future interest rates and real estate appreciation, it may be possible to structure home financing that effectively works as a reverse mortgage. By taking cash out in a refinance with an interest-only fixed rate mortgage, investing that money conservatively, and then using a portion each month to pay the monthly payment and subsidize your income, you can continue to live in your house, and tap the equity build-up to make your retirement more comfortable. However, this should only be done carefully, and with the advice of an experienced financial planner and a good mortgage person.
