Reverse mortgage

Reverse mortgage

A mortgage agreement allowing a homeowner to borrow against home equity and receive tax-free payments until the total principal and interest reach the credit limit of equity, and the lender is either repaid in full or takes the house.

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Reverse Mortgage

A loan borrowed against the value of one's home. In this situation, the lender gives the borrower the amount of the loan and the borrower makes no payments and retains title to his/her home. When the borrower moves from the house or dies, the lender takes possession of the home, which it then sells to repay the loan. Any extra profit is remitted to the borrower or his/her estate. A lifetime reverse mortgage allows a homeowner to access his/her home's equity without the inconvenience of moving. It is a financial instrument designed to help homeowners who are cash poor, and is limited to senior citizens. In the United States, one must be 62 years old in order to be eligible for a lifetime reverse mortgage, while the U.K. requires potential borrowers to be at least 55. It is also known as a lifetime reverse mortgage.

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Reverse mortgage. A reverse mortgage is a loan available to a homeowner 62 or older who may be eligible to borrow against the equity in his or her home.

Generally with a reverse mortgage, you receive money from a lender while you stay in your home. You don't have to pay the money back for as long as you live there and keep the property in good repair, but the loan must be repaid when you die, sell your home, or move to a different primary residence.

The amount you can borrow depends on your age, your home's value, your equity in it, and current interest rates. You can access the money as a lump sum, a line of credit, or a combination of these methods.

All reverse mortgages require closing costs, much like a regular mortgage, and they can charge fixed or variable interest rates. The fees can make a reverse mortgage an expensive way to borrow.

More than 90% of reverse mortgages, officially known as home equity conversion mortgages (HECMs), are insured by the US government's Federal Housing Administration (FHA). The FHA caps the size of reverse mortgages depending on the county in which your home is located and guarantees that you will receive the full amount of your loan.

Private alternatives to HECMs, called proprietary reverse mortgages, often offer higher limits. These loans may have higher costs, however.