senior couple in front of a house

We want to plan for the future as best as we can and finances are always a lingering question. It isn’t always easy to plan for things like medical bills or home repairs. One answer to this question is applying for a reverse mortgage on your biggest asset, your home. According to the Consumer Financial Protection Bureau, there are about 70,000 new reverse mortgages issued every year.

But is a reverse mortgage right for you? This program isn’t understood by many people and if consumers are unaware of what a reverse mortgage is they could face serious financial strains. As you research and determine whether or not a reverse mortgage is for you, here are some commonly asked questions:

What is a reverse mortgage?

A reverse mortgage is a type of loan that lets you borrow against the equity you’ve built up in your home. This money can be used for anything and doesn’t have to be paid back immediately.

Who can apply and what do I need to qualify?

You must be at least 62 years old and own your own home or be able to pay off your home with the money from the reverse mortgage. Also, you must live in your home and your home must meet certain criteria according to the U.S. Department of Housing and Urban Development (HUD).

How do I apply?

You can apply through a reverse mortgage lender. But before you can get the loan, you have to meet with a reverse mortgage councilor and there is a fee that you must pay. Usually that cost is lumped into the loan.

How can I receive the money?

Payment can come in the form of a line of credit, a monthly payment or a lump sum. Many times consumers mix these ways together depending on their situation.

When do I have to pay back a reverse mortgage?

The answer to this is simple: either when you sell your home, permanently move, or die. If you fail to make your payments on property taxes or homeowners insurance the loan also becomes due.

What are the pros of a reverse mortgage? (According to Reverse Mortgage Guidelines)

  • You can pay off existing mortgages on your home.
  • They are simple to qualify for because there is no minimum credit score or income requirements.
  • The loan can’t become “upside down” so no one is liable for more than the home is sold for.
  • There is no monthly mortgage payment as long as the eligibility requirements are met and you live in the home.
  • Reverse mortgage interest rates can be lower than tradition mortgages.
  • The payments are flexible.
  • Heirs can inherit the home and keep any remaining equity after the reverse mortgage is paid off.
  • The income from a reverse mortgage cannot be taxed.

What are the cons of a reverse mortgage?

  • You have to pay FHA mortgage insurance and the origination fee.
  • The fees are higher than a traditional mortgage because of the insurance cost.
  • The loan balance becomes larger over time.
  • The value of your home may decrease over time.
  • Government assisted programs and Medicaid may be affected, because of the increase in your income. Social Security and Medicare are not impacted.

There are many factors to look at when determining if you should apply for a reverse mortgage. How will you use the money, and will you be able to pay it back? It’s important to do thorough research and talk with friends and family who have your best interest at heart.