What is a Reverse Mortgage?

A reverse mortgage is a loan for seniors or retirees designed to allow the use of home equity for financial security, while retaining ownership. A reverse mortgage turns a portion of home equity into regular cash payments, a single cash payment or a line of credit for the homeowner. It is similar to a traditional mortgage, but in reverse. Rather than making a payment to the lender each month, the lender makes payments to the borrower(s) or homeowner(s) through advances against the home’s equity.


CFPB Takes Action Against Three Reverse Mortgage Companies
The Consumer Financial Protection Bureau (CFPB) took action against three reverse mortgage companies for deceptive advertising practices, including claiming that consumers could not lose their homes. For more information on CFPB's action, click the link above.

Consumer Frustration Surrounding Reverse Mortgages
Consumer Financial Protection Bureau (CFPB) Report

Steps to Take if You Have a Reverse Mortgage
Consumer Financial Protection Bureau (CFPB)

Avoiding a Reversal of Fortune
Financial Industry Regulatory Authority (FINRA)

There are two factors considered when applying for a reverse mortgage, the age of the borrower(s) and the amount of equity in the home. The borrower’s income and creditworthiness are not factors considered for a reverse mortgage. To be eligible the homeowner must be at least 62 years of age, the home must be the primary residence and the homeowner must own the home or have a mortgage payoff balance that can be satisfied with the monies obtained through the reverse mortgage

If a reverse mortgage is approved by the lender, the borrower(s) would not be required to make monthly payments to repay the loan as long as they continue to live in the home. Upon death or the borrower(s) moving to a new home, the loan becomes due as well as fees and interest included in the contract. If the reverse mortgage was secured by two individuals, the loan would not become due until both borrowers have passed away or move from the home. The borrower’s heirs are not responsible for loan repayment, even if the loan balance is greater than the remaining equity in the property.

Mortgage counseling is a requirement when applying for a reverse mortgage. It is recommended that seniors include adult children in counseling sessions to ensure there is a clear understanding of the product. It is important that all involved parties are aware that the loan is secured against the equity of the home.