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Benefits and Downsides of Reverse Mortgages

Last Updated: April 2, 2013

What is a Reverse Mortgage?

A Reverse Mortgage - also called a Home Equity Conversion Mortgage (HECM) -- is a type of loan for homeowners over the age of 62 that turns the equity saved up in a home into cash.

When someone secures a Reverse Mortgage, they are able to use the money from their home equity while also living in and retaining ownership of the home.

Can a Reverse Mortgage be Used to Age in Place?

The proceeds from a reverse mortgage can be used for any purpose and many seniors secure a reverse mortgage to help them stay in their own home as they age. In fact, a requirement of a reverse mortgage is that the homeowner(s) occupy the home.

Common uses of reverse mortgage benefits include:

  • Paying for skilled nursing or other in home care.
  • Funding out of pocket medical expenses.
  • Improving or modifying the home to make it more suitable for a senior.

Who Qualifies for a Reverse Mortgage?

Eligibility for a reverse mortgage is determined by three primary factors. The borrower(s) must:

  • Be 62 years or older.
  • Have enough equity to eliminate any existing mortgages.
  • Have a home type approved by the FHA - usually a single family home.

What are the Financial Benefits of a Reverse Mortgage?

Most seniors secure a reverse mortgage to improve their financial situation. A reverse mortgage can both reduce expenses and increase available cash.

  • Eliminate Mortgage Payments: If the homeowner(s) is eligible for a Reverse Mortgage, then the loan pays off the balance on the existing mortgage - eliminating all monthly mortgage payments. This alone can dramatically reduce monthly expenses and allow the cashflow to be used for in home care or other purposes.

  • Access Cash Benefit: If there is enough equity in the home, homeowners can also receive a cash benefit which can further supplement income.

How Much Money is Accessible with a Reverse Mortgage?

The amount of money a senior can secure with a reverse mortgage is determined using a calculation that takes into account the homeowner's age, current interest rates, the appraised value of the property, any outstanding mortgages or other liens on the property and the maximum loan limits as determined by HUD and the FHA.


Is There a Downside to a Reverse Mortgage?

The fees for Reverse Mortgages are marginally higher than those incurred with a traditional mortgage.

What is the Best Way to Find a Reputable Mortgage Lender?

A Place for Mom has partnered with NewRetirement, a trusted source for finding prescreened Reverse Mortgage lenders.

NewRetirement pre-screens lenders and only refers borrowers to brokers who are licensed by the Department of Housing and Urban Development (HUD), adhere to the National Reverse Mortgage Lender Association (NRMLA) guidelines, have a clean record with the Better Business Bureau and are verified as reputable by at least two references.


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