REVERSE MORTGAGES EXPLAINED

Reverse mortgages that we have today have been around since then President Ronald Reagan signed into law the Housing and Community Development Act of 1987. Technically referred to as the Home Equity Conversion Mortgage, or HECM, a reverse mortgage allows homeowners aged 62 and up to tap into a portion of their home equity without refinancing or making monthly payments. How does that work?

Reverse mortgages are a bit counterintuitive. A regular mortgage, where one takes out a loan to buy a home, is easy to comprehend. You borrow money and you pay it back. With a reverse mortgage, homeowners can tap into a portion of the equity in their home and do not have to make monthly payments. The only time the reverse mortgage is paid back is when the last person on the reverse mortgage leaves the house.

Interest accrues on the amount issued to the homeowners based upon the terms of the original reverse mortgage. A reverse can only be used on a primary residence and the amounts available are based upon the equity in the property and the age of the homeowner. Reverse mortgages can be either a fixed or adjustable rate and can be paid in one lump sum, monthly installments or a combination of both. If there is an existing mortgage on the property, the funds from the reverse mortgage must first pay off any outstanding liens and there can be no mortgages on the home once the reverse is issued.

The reverse mortgage has evolved over time and today provides a safe, convenient way to access home equity without having to take a cash out refinance and the monthly payments that go along with it or even selling the home. A reverse mortgage allows homeowners who qualify to tap into that equity without the need to take out another loan.

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