A reverse mortgage is a loan with increasing debt and decreasing variable capital. Unlike a traditional loan, you withdraw money from your home and make no payments, so your balance increases and your equity decreases. However, you always own the home and all of the equity in the property belongs to you or your heirs. When you apply for a reverse mortgage loan, your home title stays with you.
If you move, sell your home, or the last surviving borrower or eligible spouse who didn't apply for it dies, you or your estate must repay the HECM loan, but you'll never owe more than the value of the home. The content of this page provides general information for the consumer. Not legal advice or regulatory guidance. The CFPB updates this information regularly. This information may include links or references to third-party resources or content.
We do not endorse third parties or guarantee the accuracy of this third party's information. There may be other resources that also meet your needs. As with a term mortgage, a home is the guarantee of a reverse mortgage. When the owner moves or dies, the proceeds from the sale of the home go to the lender to repay the principal, interest, mortgage insurance, and reverse mortgage fees. Any proceeds from the sale that exceed what was borrowed go to the owner (if he is still alive) or to the owner's estate (if the owner is deceased).
In some cases, heirs may choose to pay the mortgage in order to keep the home. Like any other type of mortgage, you own the home in a reverse mortgage situation. When you get a reverse mortgage loan, the title to your home stays in your name. It's just like a traditional mortgage, in the sense that you simply file a lien against the property, just like any other mortgage loan. The main difference between a traditional loan and a reverse mortgage is that there are no monthly mortgage payments required with a reverse mortgage.
However, since the house remains in your name, you are still responsible for paying all your property taxes, as well as homeowner's insurance and any maintenance. Variable-rate inverse mortgages are linked to a benchmark index, often the Constantly Maturity Treasury Index (CMT). People sometimes believe that reverse mortgages are a way that banks can scam homeowners out of taking them out. A will is particularly important for inverted mortgage borrowers who have a spouse or long-term partner who lives with them. A reverse mortgage or HECM loan will expire and become payable if the borrower fails to comply with property taxes, repairs and maintenance. Learn how much capital you need to get a reverse mortgage to supplement your retirement income or meet other financial goals. To process a reversed home loan after it matures, it's important for heirs to act quickly and be informed of their options.
If you're a reverse mortgage borrower, it's important that you have a plan to process your loan after you die. In the case of the most popular type of reverse mortgage, called HECM, if the loan is lower than the value of the home (the loan is higher than the value of the home), then HUD will cover any deficit to satisfy the lender. Unscrupulous home improvement sellers and contractors have turned to older people to help them obtain reverse mortgages to pay for home improvements, in other words, so they can earn money. A reverse mortgage can be a useful financial tool for older homeowners who understand how loans work and what trade-offs entail. The intent of a reverse mortgage is to allow you to stay in your home as long as you want or can and continue to maintain your standard of living. Reverse mortgages are complicated and are generally not the best option for older homeowners looking for access to funds.
It's easy to understand why so many people mistakenly believe that lenders take ownership of homes in exchange for giving borrowers a reverse mortgage. I know what you're thinking - you're worried that having a reverse mortgage will prevent you from doing things like painting it a certain color, doing renovations, renting out rooms or letting family members move in. No - reverse mortgage heirs do not have to assume any remaining loan balance and are not responsible for repaying it either. However, if interest is deductible then it's important to keep records that show exactly how funds from a reverse mortgage were used.