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Financial Answer Center

The Role of Your Home in Retirement

Reverse Mortgage

Note: This section applies to you if you are age 62 or older.

A reverse mortgage or reverse annuity mortgage allows you to receive a stream of monthly payments or have a line of credit from a mortgage company. This option allows cash-strapped elderly homeowners the opportunity to use some or all of the equity in their homes while they are alive.

How It Works

The bank uses your home as collateral and makes monthly payments to you or establishes a line of credit that you can draw upon. The payments to you are based on your age, the home's value, interest rates, and your marital status. Unlike a conventional loan, you don't have to make payments to the bank. Principal, interest, and fees simply accrue against the home's value and are paid when you sell your home.

Generally to qualify for a reverse mortgage:

  • You must be at least age 62.
  • If you're married, your spouse must also be at least age 62.
  • You must owe very little or nothing on your home.
  • Applicants must agree to accept mortgage counseling from a federally approved counselor. And,
  • You retain title to the home and full responsibility for its upkeep.

IMPORTANT NOTE: Extreme caution should be exercised before a reverse mortgage is implemented. Consider the following:

  • There are fairly expensive up-front closing costs and, possibly, monthly service charges, too. These costs can be included in the loan.
  • For young retirees, the monthly checks are quite small. You really shouldn't consider a reverse mortgage until you are in your 70s.
  • If you outlive the term of the loan, you may be forced to sell your home and move.

See the section on Reverse Mortgages for more information.

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