What is a reverse mortgage?

A reverse mortgage is a way to extract equity from your home.  It is a type of mortgage loan available to seniors who are 62 years of age or older.  The homeowner is able to pull equity out of the house in a lump sum or in a series of payments, and the obligation to repay the loan is deferred until the homeowner dies, the house is sold, or the owner moves the home.

Pros of using a reverse mortgage

• The homeowner is able to convert equity into cash.
• There are typically no income or credit requirements.

Cons of using a reverse mortgage

• There are closing costs to originate the reverse mortgage, and interest accrues on the balance outstanding.
• You must have a lot of equity in your home to qualify.
• The terms are often very complicated and confusing to the borrower.

How much does a reverse mortgage cost?

• The origination fee is typically $2,500 or 2% of the first $200,000 and 1% thereafter, whichever is higher, with an overall cap of $6,000.  Mortgage insurance of approximately 2% of the appraised value and various other fees that can range from $1,500 to approximately $5,000.

Who should participate in a reverse mortgage?

• You may be a good candidate for a reverse mortgage if you are 62 or older, have a lot of equity in your home, and need the money today.