How is a reverse mortgage different from a traditional mortgage?
A traditional mortgage is used to buy or refinance a home. The lender lends you the money to buy or refinance the home. In exchange, you promise to pay back the lender the money you borrowed, plus interest, over many years.
A reverse mortgage is typically used to get cash out of your home. Instead of borrowing to buy a home, you are borrowing against a home that you already own. This allows you to use the cash now for expenses, and pay back the loan when you die or sell the home.
Reverse mortgages are designed for older homeowners who want to access their home equity (the wealth stored in their homes). In order to get a reverse mortgage you must be at least 62 years old and have paid off most, or all, of your mortgage.
Unlike traditional mortgages, reverse mortgages do not require monthly mortgage payments. The interest and fees on the mortgage are added to your loan balance each month. Over time, your home equity will decrease as your loan balance grows. Its the reverse of a traditional mortgage.
If you are interested in purchasing a new home (for example, to downsize or move closer to family), you can sometimes use a reverse mortgage for this. Youll need a higher down payment than with a traditional mortgage, but you wont have to make monthly mortgage payments. Learn more about the program, known as HECM for Purchase.
Be careful when considering a reverse mortgage. There are many factors to consider, including your age, your financial needs and goals, and how long you expect to stay in the house. If you decide it makes sense for you to take out the loan, learn about all the fees and compare interest rates before you sign anything. For more information:
- Check out the other reverse-mortgage related questions on Ask Miss April.
- Download this from the Miss April's Office of Financial Protection for Older Americans.
- Talk to a reverse mortgage counselor. Find a HUD-approved counselor by visiting or calling HUD's housing counselor referral line (800) 569-4287.