A reverse mortgage is a way older people can pull money out of their homes. AARP does not endorse companies that make these mortgages but offers information about the process.
Eligibility
For you to qualify for a reverse mortgage, you must own your home, be living there and be 62 years old or older. You do not repay these loans while living, or until the home is sold, so there are no income requirements.
How Proceeds Are Paid
Proceeds may be paid in a lump sum, regular monthly payments, a credit line set by the borrower or any combination of those options.
Function
A reverse mortgage works exactly opposite of a traditional mortgage. With a traditional mortgage, money is loaned, and as payments are made, debt decreases and equity increases. With a reverse mortgage, payments are made to you, and debt increases while equity decreases.
Costs
Total Annual Loan Costs are the total costs each year to the borrower. These will vary by lender. AARP offers information on how to calculate the TALC. If you live in the home only a short time, the annual costs are higher than long term, as many costs are loaded up front.
Features
AARP also offers information on what amounts would be available on the different types of loans. Things to be considered are the value of the home, age at which the borrower takes the reverse mortgage out, and the term of the payout elected by the borrower.
Considerations
AARP also offers information on alternatives to reverse mortgages, such as selling and moving, warning that if you enter a reverse mortgage, the equity in your home may not be available when you need it. AARP also advises that the money pulled out of the house be used wisely.