What is a Reverse Mortgage?

One of the topics most talked about by callers to my radio program is about reverse mortgages. There seems to be a lot of interest and misconceptions about this type of loan and I suspect as more and more baby boomers become eligible and realize they aren't going to make it through retirement on their savings and social security, there will be even more interest over the next few years.

So, what is a reverse mortgage and is a good idea for you or a loved one?

A Reverse Mortgage is a loan available to seniors over the age 62 allowing them access to their home equity on their primary residence in a lump sum or multiple payments. The obligation to pay the loan is deferred until the owner dies or when the home is sold. There are currently 36 million people over the age of 65 with a large majority owing their home free and clear. In 2008, the first wave of baby boomers will be eligible for reverse mortgages.


To qualify for a reverse mortgage, you must be at least 62 years old and own your own home. There must be enough equity in the house to pay off outstanding loan balances. The amount of money you can get will depend on how old you are at the time of closing, how much your home is worth, the total amount of liens, and current interest rates. You can receive the money in a lump sum, set up a line of credit, monthly payment, or all three. Since the money is not additional income, all funds from the reverse mortgage are tax-free. Closing costs are very similar to a “conventional” loan, and are paid by the borrower. Make sure to consult your mortgage broker for more information on fees. Counseling is provided and required on all reverse mortgages to ensure that the borrower understands how everything works.

It is important to note that reverse mortgages are non-recourse loans, which means a borrower can never owe more than what their house is worth at the time of repayment, commonly referred to as going upside down.

Currently reverse mortgages account for .5% of all mortgages, this expanding segment is definitely an area to keep an eye on.

For further reading from reliable sources, click here, here or here.