A reverse mortgage loan is a type of mortgage loan that is reserved for senior borrowers who either own their home outright or have equity in their home. A reverse loan can be used to monetize that illiquid equity stake into funds for retirement, with the proceeds tax free.*
The predominant type of reverse loan is the Home Equity Conversion Mortgage (HECM). This variation of reverse mortgage loan is insured by the U.S. Government’s Federal Housing Administration (FHA) and is only available through FHA-approved lenders.
*This information does not constitute tax advice. Please consult a tax advisor regarding your specific situation.
Who is eligible for a reverse mortgage?
How much home equity is needed for a reverse mortgage loan?
The specific percentage varies by lender, prevailing interest rates and the type of reverse mortgage, but a general rule of thumb is to have approximately 40%-60% or more equity in your home. Borrowers should contact their lender to discuss all possible options.
Can you refinance your home loan if there is an existing reverse mortgage loan in place?
Reverse mortgage refinancing is an option that makes sense in certain situations. It may have been several years since you closed, and rates may have lowered, or it may make sense to switch from an adjustable rate to a fixed rate through a refinance. Perhaps your home has appreciated in value, and you have additional equity you’d like to tap into. Refinancing may increase the amount of money you are eligible to receive.
Can you sell the home if there is a reverse mortgage loan in place?
Yes. You can sell a house with a reverse mortgage already in place. However, keep in mind that when you sell the home, similar to a traditional mortgage, your reverse mortgage comes due, and you will need to pay off the reverse mortgage loan balance, plus interest and fees, at the time of the sale.