The Reverse Mortgage (or Home Equity Conversion Mortgage, HECM) has received a bad reputation through the years due to many myths. However, it can be a good source of additional income for the later years. I recently helped a 92-year-old client get a reverse mortgage for a lump sum amount greater than $500,000. (FHA-insured reverse mortgages only allow up to $500,000. ) With the current inflation that we're experiencing, her pension and Social Security income left her with little to enjoy life.
A common myth with Reverse Mortgages is that the lender holds the title to the house. This is untrue. The owner retains the title and the home is used as collateral for the amount borrowed. Interest accrues until the owner moves out or becomes deceased. Once either of those events happen, the loan becomes due. The family has the choice to sell the home to pay off the loan or take out their own mortgage to pay off the loan.
Lenders will typically lend an amount up to half of the value of the home, unless the owner decides for an FHA-insured loan, in which case the max amount is $500,000.
Options for receiving the funds are either a monthly payment, a lump sum payment after closing, or a combination of both.
See what AARP says about the Reverse Mortgage to learn if it's right for you.