What Is a Reverse Mortgage and How Does It Work?

For many homeowners age 62 and older, a large portion of their wealth may be tied up in the equity of their home. A reverse mortgage can provide a way to access that equity without selling the property or taking on a traditional monthly mortgage payment.

A reverse mortgage is a loan designed specifically for eligible homeowners that allows them to convert a portion of their home equity into cash. Unlike a traditional mortgage where the borrower makes payments to the lender, with a reverse mortgage the lender makes payments to the homeowner.

The homeowner generally remains responsible for:

• Property taxes

• Homeowners insurance

• Property maintenance

• HOA fees, if applicable

The borrower must continue to live in the property as their primary residence.

How Does a Reverse Mortgage Work?

With a reverse mortgage, available funds can often be received in several ways:

• Lump sum payment

• Monthly payments

• Line of credit

• Combination of options

The loan balance increases over time as interest and fees accrue. Repayment is typically not due until one of these events occurs:

• The homeowner sells the home

• Moves out permanently

• No longer occupies the property as a primary residence

• Passes away

At that point, the property is usually sold and proceeds are used to repay the loan balance. Any remaining equity belongs to the homeowner or their heirs.

Common Misunderstandings About Reverse Mortgages

Many people believe the bank takes ownership of the home. That is generally not true.

The homeowner still owns the property and keeps title to the home. The reverse mortgage simply places a lien against the property, similar to a traditional mortgage.

Another common misconception is that heirs automatically lose the home. In most cases, heirs can:

• Sell the property and keep remaining equity after the loan payoff

• Refinance and retain ownership of the property

• Walk away if the loan exceeds the home's value

Most federally insured reverse mortgages include protections so borrowers and heirs do not owe more than the home's value.

Is a Reverse Mortgage Right for Everyone?

A reverse mortgage can be helpful for homeowners looking to:

✓ Supplement retirement income✓ Eliminate an existing mortgage payment✓ Access funds for medical expenses or home improvements✓ Improve monthly cash flow while remaining in their home

However, it may not be ideal for every situation. Long-term goals, estate planning, future housing plans, and overall financial strategy should all be considered before moving forward.

Final Thoughts

A reverse mortgage is not simply "free money," but for the right homeowner it can be a useful financial tool. Understanding how it works—and how it affects future equity—is important before making any decision.

If you have questions about reverse mortgages, downsizing, selling options, or housing strategies for retirement, there are several paths available depending on your specific goals.

Thinking about your next move? Contact us to discuss your options and determine what makes the most sense for your situation.