Reverse mortgages are a unique mortgage product that is available to persons over the age of 62 who are looking to tap into the equity in their homes, either as a single lump sum payment or set installment payments over time. They allow seniors to remain in their homes yet still enjoy the benefits of the equity they’ve built up, instead of forcing them to sell the home and move in order to unlock any equity.
There are no minimum income or credit requirements for reverse mortgages and the money can be used for any purpose. The borrower must pay off any existing mortgage with the proceeds from the reverse mortgage. Before borrowing, applicants must seek free financial counseling from a source which is approved by the Department of Housing and Urban Development (HUD).
The reverse mortgage loan ends when the homeowner dies, sells the house, or moves out of the house for 12 consecutive months. A significant drawback to reverse mortgages are the high upfront costs, which causes some seniors choose other options to draw on their home equity.