What are reverse mortgages?

3 answers | Last updated: Dec 04, 2016
A fellow caregiver asked...

What are reverse mortgages?

Expert Answers

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.

Community Answers

Sjolley2 answered...

A reverse mortgage is defined by the government in the IMPORTANT NOTICE disclosure in every reverse mortgage as "a complex financial instrument" with lifelong consequences for you and your estate. You should always get financial and legal advice before entering into a complex financial agreement that impacts the rest of your life. Tapping into the equity of your home is a feature of a reverse mortgage and you should know if that feature is financially beneficial throughout retirement. Sandy Jolley Reverse Mortgage Suitability and Abuse Expert

Sjolley2 answered...

NEW UPDATE: As of June 12, 2015 A Non-borrowing spouse (told to take their name off title) can have the option to remain in the home for life (after the borrower spouse dies). There are conditions and the Servicer is able to choose if they want to offer the option or foreclose instead. Look at HUD Mortgagee Letter 2015-15.