A reverse mortgage is a special type of home equity loan that allows you to receive cash against the value of your home without selling it. You can choose to receive a lump-sum payment, a monthly payment, or a line of credit.
You must use the funds you receive to pay off any existing mortgages or other debt against your home and to make required home repairs. There are no restrictions on how you use the remainder of the money. As long as you spend the payments you receive in the month that you receive them, the money is not taxable and does not count towards income or affect Social Security or Medicare benefits. It also does not count as income for Medicaid eligibility.
When you take out a reverse mortgage, you continue to live in the home and you retain title and ownership of it. You are also still responsible for taxes, hazard insurance, and home repairs. However, you do not have to repay the loan as long as you continue to live in the home. Instead, the amount you owe, based on loan payouts and interest on the loan, becomes due when you or the last borrower, usually the last remaining spouse, dies, sells, or permanently moves out of the home.
Reverse mortgages are available to homeowners age 62 and older. Unlike traditional mortgages, you do not have to provide an income or credit history to get the loan.
You can use the money you receive from your reverse mortgage to pay for in-home and community services and other expenses, such as home repairs and transportation, which can make it safer and more comfortable for you to live at home. Your long-term care expenses may be greater than the amount you can get in the reverse mortgage. You can also use the money to purchase long-term care insurance. It may be hard for a married couple to purchase long-term care insurance or pay for long-term care services for both spouses with the amount available from a reverse mortgage.
There are three types of reverse mortgages. These include:
Most people get reverse mortgages through a mortgage lender. Some credit unions and banks, with state and local housing agencies, may offer these loans as well.