A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment.

The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. Eligible property types include single-family homes, manufactured homes (built after June 1976), qualified condominiums, and townhouses.

Enhancing your retirement years
The funds from a reverse mortgage can be used for anything. Common uses include supplementing retirement income to cover daily living expenses; repairing or modifying your home (i.e., widening halls or installing a ramp); covering health care expenses; paying off existing debts; taking a vacation; paying property taxes; and preventing foreclosure.

There are no income or medical requirements to qualify. You may be eligible for a reverse mortgage even if you still owe money on a first or second mortgage.

What are my payment options?
You can choose to receive the money from a reverse mortgage all at once (lump sum), as fixed monthly payments (for up to life), as a line of credit, or a combination of these. The most popular option – chosen by more than 60 percent of borrowers – is the line of credit, which allows you to draw on the loan proceeds at any time.

The amount of money you get from a reverse mortgage depends upon your age (or age of youngest borrower in the of couples), appraised home value, current interest rates, and where you live. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you get.

The funds from a reverse mortgage are tax-free. A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if a person gets a lump sum payment from a reverse mortgage, any amount retained the month after he gets it would count as a resource and could affect Medicaid eligibility.  For example, if a person receives $4,000 for home repairs and spends it the same calendar month, this would not affect resources. But if he didn't spend it all, the amount retained as of the first of the next month would count as a resource.  If his total liquid resources exceed $2,000 for an individual or $3,000 for a couple, he would be ineligible for Medicaid.  In addition, how much of the lump sum he could retain without affecting eligibility depends on the amount of other liquid resources he already has, such as money in bank accounts, savings bonds, etc. To be safe, you may want to consult a Medicaid expert.

Mandatory Counseling
Before applying for a reverse mortgage, you must first meet with a counselor. The counselor’s job is to educate you about reverse mortgages, answer your questions, and offer alternative options depending on your situation.

Paying Back Your Loan
No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home, or permanently move out. The amount owed can never exceed the value of your home. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.