MoneyTips

Reverse mortgages can be a useful tool for seniors attempting to convert the equity in their home into cash for living expenses or other retirement purposes. The loan is usually paid out over time instead of as a lump sum.

There are no repayments as long as the senior taking out the loan continues to live in the home, properly maintains it, and pays all the necessary property taxes and other property-related fees. Once the primary borrower passes away, moves away, or sells the property, the loan must be repaid.

The reverse mortgage loan, along with accrued interest, is repaid with the proceeds of the sale of the home. If any equity remains in the home, the proceeds go to the seller.

In essence, with a reverse mortgage, you are selling the equity in your home back to a lender in increments.

The majority of reverse mortgages are Federal Housing Administration (FHA) loans under the Home Equity Conversion Mortgage (HECM) program. Under the HECM program, if there aren’t enough proceeds from the eventual home sale to cover the loan balance, the FHA will cover the difference.

To qualify for an HECM, you must be at least 62 years old and have sufficient equity in your home. Your home must also meet other FHA property guidelines and standards. Before the loan is approved, you must agree to consumer counseling and education as part of the overall HECM program.

Changes made in 2017 by the Department of Housing and Urban Development (HUD) increased restrictions on HECM borrowing limits and otherwise limited the number of…