What is a Reverse Mortgage and How Does It Work?

March 31, 2024

As a viable option for certain senior homeowners, reverse mortgages can be an important tool to secure a stable financial situation during retirement.

Reverse mortgages are often misunderstood, simply because people either haven’t received enough information regarding them or have heard too many outdated myths that aren’t necessarily true of this mortgage type.

In reality, reverse mortgages can prove very beneficial for senior homeowners in certain circumstances — especially those who are hoping to improve their financial situation during retirement.

What is a Reverse Mortgage?

A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home.

The proceeds can be paid to you in one lump sum, as a regular monthly income, or at the times and in the amounts you want through a line of credit.

The loan and interest are repaid only when the owner sells the home, permanently moves away, or passes away.

How Do Reverse Mortgages Work?

In general, a reverse mortgage:

  • Requires no principal or interest payments for as long as you live in the home.
  • The lender is repaid in full when the last living borrower passes away, sells the home, or permanently moves away.
  • Because you make no monthly payments, the amount you owe increases over time. By law, these are non-recourse loans, meaning you never owe more than your home's value at the time the loan is repaid.
  • You continue to own the home, so you must pay the property taxes, insurance, and repairs. If you fail to pay these, you would be in default and the lender can use the loan to make payments or require you to pay the loan in full.

Who is Eligible for a Reverse Mortgage?

It’s best to work with a Reverse Mortgage Specialist to determine if you are eligible for a reverse mortgage, but typically, these are the requirements:

  • All homeowners must be at least 62 years old
  • At least one owner must live in the house most of the year

Eligible homes include:

  • Single family, one-unit dwellings
  • Two-to-four-unit, owner-occupied dwellings
  • Some condominiums, planned unit developments, or manufactured homes
  • Note: Cooperatives and most mobile homes are not eligible

How Much Will I Get with a Reverse Mortgage?

The amount you receive from a reverse mortgage depends on your age, your home's value, current interest rates, and the cost of the loan.

The greatest amounts typically go to the oldest owners living in the most expensive homes getting loans with the lowest costs.

Most people get the most money from the Home Equity Conversion Mortgage (HECM), a federally insured program.

How you receive the money also varies. Reverse mortgages can be paid to you:

  • In one lump sum, as cash
  • As a monthly income
  • As a credit line that lets you decide how much you want and when
  • Or any combination of the above

I Want to Learn More, But Where Do I Start?

At Waterstone Mortgage, we help seniors explore whether a reverse mortgage is ideal for their current circumstances and long-term goals. Because reverse mortgages are unique, we take the time to answer questions, address concerns, and help our potential clients strategize for the future.

Interested in learning more? Get in touch with a trusted Reverse Mortgage Specialist at Waterstone Mortgage to see if you might qualify for a reverse mortgage. It’s our goal to help senior citizens create a more financially stable and secure retirement.

These materials are not from HUD or FHA and were not approved by HUD or a government agency.

The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM), and is only available through a Federal Housing Administration (FHA)-approved lender. Not all reverse mortgages are FHA insured. When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. A lender may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan). The balance of the loan grows over time and you are charged interest on the balance. Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, and related taxes (which may be substantial). There is no escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable (and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid.