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How It Works

How Does a Reverse Mortgage Work?

It’s relatively simple but you should be absolutely clear on all the details. Basically, a reverse mortgage (HECM) enables you to tap the equity in your home – one of your most valuable financial resources – while you continue living in it and without having to make any payments to repay your loan.

Borrow Against Your Equity

After years of paying down your mortgage, you have built up equity (the value of your home minus anything you still owe on it plus any outstanding debt against it – i.e., a previous home equity or improvement loan you may have taken). With a reverse mortgage, you borrow against that equity.

A Closer Look

The loan amount is based on your age (must be 62 or older), your home’s appraised value minus outstanding debt, and current market interest rates. The loan balance continues to grow over time but you don’t have to pay back anything while you or an eligible spouse lives in the home. You are responsible, however, for continuing to pay property taxes, home insurance and maintenance to the home.

Convenient Payout Options

You can take your HECM payout in cash in one lump sum or monthly increments, or convert the equity into a line of credit. Whichever you choose, you can use the money for anything you want, from daily living expenses to healthcare costs.

The Final Payoff

When the last borrower or eligible non-borrowing spouse leaves the home (or doesn’t comply with loan terms) the loan balance, including any fees and interest, becomes due. Most people sell their homes at this point to pay off the loan. But you and/or your heirs will never have to pay back more than your home is worth.

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