What Is a Reversible Mortgage

What is a reversible mortgage? For homeowners who are sixty-two years or older, a reversible or reverse mortgage allows the homeowner to convert a portion of equity into tax-free income.

How Do Reverse Mortgages Work?

The name reversible or reverse mortgage means your mortgage payments are reversed. Instead of the homeowner making monthly payments to the lender, the lender makes payments to the homeowner.

To be eligible for a reversible mortgage:

• You must own your home outright of have a small remaining balance.
• The home must be your primary residence.
• You must be sixty-two years or older.

Homes must be single-family homes or two to four unit properties, or manufactured homes built after 1976. Reversible mortgages are also eligible for condominiums, town homes and, in some cases, even co-ops in larger metropolitan areas like New York City.

The amount of money you can get from a reversible mortgage depends upon:

• The age of the youngest resident living in your home
• What your home appraises for
• Interest rates
• Comparable lending amounts in the area where you live.

Essentially, the older you are and the less you owe on your mortgage balance, the more dollars you can get.

There are a couple ways you can be paid if you qualify for a reversible mortgage. First, you can elect to receive a lump sum or regular monthly payments for as long as you live in your home typically in the form of a line of credit. Most people choose the line of credit option where they can write checks or draw the amount of money they require each month.

You can use the money from your reversible mortgage for anything you wish including daily living expenses, repairs or upgrades to your home, health care, other debts, property taxes, vacations or even to buy a new car.

Many people wonder how a reverse mortgage works when they have an existing mortgage. In most instances, the lender will require that the principal mortgage is paid off in full with proceeds from the reversible mortgage.

A reversible mortgage is paid back when you can no longer occupy your home as your principal residence, if you are deceased, or you sell the home. The amount of your reversible mortgage, or what you owe, must not exceed the market value of your home. Once you no longer occupy the home, the sale of your home will pay off the reverse mortgage.

There are some circumstances where a reversible mortgage may not be right for you. For example, if you think you may sell or move out of your home in one to two years, you might consider refinancing at a lower rate. If property taxes are the reason you are thinking about a reversible mortgage, consider contacting an accountant or your county about tax deferral programs or a homestead tax exemption.

Visit The US Department of Housing and Urban Development website to learn about the top ten things to know about reversible mortgages. Read through these carefully and use their toll-free number if you have any questions.

You may also contact a Realtor in your area with further questions. Realtors are trained to help seniors understand, apply for, and obtain reversible mortgages..

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