What are reverse mortgages?

A fellow caregiver asked...

What are reverse mortgages?

Expert Answer

Barbara Steinberg is the CEO and founder of BLS Eldercare Financial Solutions, which specializes in helping families pay for long-term care for their loved ones. A registered financial gerontologist, she speaks regularly on the topic of paying for long-term care and is a financial expert for Caring.com.

A reverse mortgage is a financial tool for seniors over age 62 to tap the equity in their homes. Unlike a forward mortgage, no payments need to be made on a reverse mortgage until the owner no longer lives in the house.

When all owners have either moved out or passed away, the outstanding balance (amount borrowed plus interest) must be paid in a single payment. If the house is worth less than the balance owed, the former owners or their heirs are not responsible for paying the difference. By federal regulation, homeowners with a Home Equity Conversion Mortgage (the most common type of reverse mortgage, approved by the Federal Housing Administration) can never owe more than the house is worth or lose the title to their home.

Although there are closing costs with this type of mortgage, they are generally rolled into the mortgage so that any out of pocket costs are usually minimal.

With a reverse mortgage, your parent can opt for receiving monthly payments for life, payments for a fixed period of time, a lump sum or a line of credit. They can combine any of these options or change their option at any time.
Many seniors, especially those who are faced with unexpected health care expenses, are finding reverse mortgages to be a solution to an overwhelming problem. However, a reverse mortgage is not for everyone. It is important to review all of the pros and cons for your specific situation.