Reverse Mortgages, Explained Without the Jargon

For many retirees, the house is their biggest asset. A reverse mortgage lets homeowners 62 and older turn part of that home equity into cash, without selling the home and without a required monthly mortgage payment. Here's how it works, in plain English.

How it works

Instead of the homeowner paying the lender each month, the lender pays the homeowner. The loan balance grows over time and is typically repaid when the home is sold, the owner moves out permanently, or passes away.

Who may qualify

Lenders look at several factors, including:

• Being 62 or older (the most common minimum age).
• Whether the home is your primary residence.
• How much equity you have in the home.
• Your ability to keep paying property taxes, homeowners insurance and upkeep.

Meeting these doesn't guarantee approval. Every lender reviews each application.

How the money can be paid out

Usually as a lump sum, monthly payments, a line of credit to draw on when needed, or a combination. Many people like the line of credit because they only use what they need.

What about the heirs?

The owner keeps the title. When the loan comes due, heirs can sell the home and keep whatever is left after the loan is repaid, or repay the loan and keep the home. Many reverse mortgages are "non-recourse," which generally means the amount owed can't exceed the home's value when it's sold. Ask your lender to confirm how this works for your loan.

A sensible next step

Before closing, borrowers are typically required to complete a session with an independent counselor. It helps to see how much your home may qualify for first, so you bring real numbers to that conversation. Estimates vary and aren't a guarantee.

Why many retirees consider one

Reverse mortgages are designed for homeowners 62 and older, and many retirees look at them for the same reasons: to cover rising everyday costs, pay for home repairs or in-home help, pay off an existing mortgage, or simply keep a cushion for surprises. For people who want to stay in the home they love, it can be a way to use their home's value without moving.

Myths worth clearing up

• "The bank takes my house." You keep the title and can live in the home as long as you meet the loan terms.
• "My children will inherit a debt." Heirs choose what to do with the home, and with many reverse mortgages they aren't personally responsible for any shortfall. Confirm this with your lender.
• "It's only for people in financial trouble." Many financially comfortable retirees use one as part of a planned retirement strategy.

Involve your family

It's a good idea to include a trusted family member or advisor in your conversations with lenders. Two sets of ears catch more details, and it helps everyone understand the plan.