A reverse mortgage allows homeowners age 62 or older to borrow against their home equity. It is called a “reverse” mortgage because, instead of making payments to the lender, you receive money from the lender. The money you receive, and the interest charged on the loan, increase the balance of your loan each month. Most reverse mortgages today are called HECMs, short for Home Equity Conversion Mortgage.
If you are considering a reverse mortgage loan, start by understanding how one works and how it will affect you now and in the future.
Questions to ask a housing counselor
If you’re considering a reverse mortgage, here are some sample questions to discuss with a housing counselor:
- How does a reverse mortgage loan work?
- How is a reverse mortgage loan different from a traditional mortgage?
- What are the upfront costs and fees in taking out a reverse mortgage loan?
- What will be the ongoing costs and fees if I have a reverse mortgage loan?
- How will a reverse mortgage loan affect my spouse, or other people living with me?
- What happens if I want to sell my home once I have a reverse mortgage loan?
- What happens to my home when I pass away?
- What happens if I have to move to a nursing home?
- How do I receive the money from my loan proceeds? Would it be better to take out the money as a line of credit, in monthly installments, or in a lump sum?
- If I already have a mortgage on my house, how is that affected by a reverse mortgage?
- What are my ongoing responsibilities once I have a reverse mortgage loan?
- What other options should I consider other than a reverse mortgage loan?
If you discussed reverse mortgages with a lender before speaking with a counselor, tell your counselor about that discussion. Did the lender recommend a particular loan type? Did the lender try to sell you anything in addition to the reverse mortgage, or describe any conditions? Your counselor can give you unbiased information about the characteristics of the loan you may be considering.
Resource: Consumer Financial Protection Bureau (CFPB), a U.S. government agency