Reverse Mortgages -- How Do They Work?

A reverse mortgage is structured to give you income during your retirement if your home is either paid off or nearly paid off and you have significant equity in your home. In a reverse mortgage, the lender gives you money for your home rather than having you pay a monthly mortgage payment.

So, yes, you get money and you no longer have to make mortgage payments on your home as well.  The money you receive can either be a monthly amount or a line of credit that you draw from as you need it.

Some will remind you that you may be dipping into someone's future inheritance, but that's okay as you really should be in a position to live comfortably in retirement.

The amount of cash that you will be able to obtain from your home depends on a variety of factors including your age, the value of the home, current interest rates and whether you have an existing mortgage on the home.

You owe nothing on the reverse mortgage until you either sell the home or pass away. When either of the two events occur, the reverse mortgage is paid in full with the lender.

Some typical qualification requirements:

• If you own the home with a spouse or someone else, both owners must be at least 62 years old.
• The home must be your primary residence.
• You will have to pay off any first mortgages or existing lines of credit on the home.
• Reverse mortgages have high upfront fees and high closing costs. These fees can be rolled into the reverse mortgage though.
• The majority of reverse mortgages are guaranteed by the U.S. Department of Housing and Urban Development.

Resources: www.hud.gov or American Association of Retired Persons website.

If you are interested in learning more, you can talk to your bank to see if they offer reverse mortgages. There are also mortgage brokers who handle only reverse mortgages as well.  There are lots of hurdles to jump through including participating in a required counseling session to ensure that you understand fully how your reverse mortgage will work when you are in the process of applying for one.

If you are getting a reverse mortgage and have a Living Trust, be sure to check your final grant deed or deed of trust so that your home is still titled into your Living Trust. Consult with your estate planning attorney to review your reverse mortgage documents once it has been funded and closed.