A reverse mortgage is a common tool used by homeowners to convert part of the equity in their home into cash. Also known as a Home Equity Conversion Mortgage (HECM), in some cases the payments may be tax free.

The history of reverse mortgages

Reverse mortgages were originally created to help senior citizens on fixed incomes access equity in their homes to pay off debts and cover basic living expenses. Today, new rules and regulations make it possible for most homeowners over the age of 62 to leverage a reverse mortgage as part of their overall financial plan.

How to qualify

There are three determining factors that a borrower must meet to satisfy the minimum requirements for obtaining a reverse mortgage.

• At least one borrower must be 62 or older
• The property must be the borrower’s primary residence
• The home must be a single-family detached residence, a multi-family building with a maximum of 4 units, or a HUD approved condominium

Reasons to consider a reverse mortgage

Many senior homeowners utilize their reverse mortgage for its original intended purpose, to supplement retirement savings and social security for regular monthly expenses and healthcare. But there are many other instances where borrowers with sound finances may still wish to access the equity in their home:

• Help a friend or family member
• Home repairs or renovations
• Set up a college fund for grandchildren
• Invest the funds into other assets

Choosing your method of payment

The funds from a reverse mortgage can be received in a single lump sum, as a fixed monthly payment, or through a line of credit. The amount of equity your lender will allow you to pull from the home will vary.

Does a reverse mortgage mean the bank owns my home?

With a Home Equity Conversion Mortgage, the borrower retains ownership of the home. The borrower can choose to sell the home at any time, as long as the remainder of the reverse mortgage is paid off at closing.

Seek sound advice

Taking out a reverse mortgage is a major financial move. Always discuss your home equity lending options with a mortgage broker prior to making a final decision.

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