A reverse mortgage, also known as a home equity conversion mortgage (HECM), is a loan available to homeowners 62 and up that allows them to convert some of the equity in their home into cash. No one wants to out-live their money, and a reverse mortgage is designed to make sure that doesn’t happen. With a reverse mortgage, seniors are able to supplement their retirement savings, while maintaining ownership of their home.

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If you’re worried about whether your retirement savings will last, a reverse mortgage could be a life-saving solution for you. Read on to learn how a reverse mortgage works and the most important things you should know about reverse mortgages.

1. You won’t lose ownership of your home

The most common misconception about reverse mortgages is that, upon signing a reverse mortgage, you give your mortgage lender ownership of your home. That simply isn’t true. You retain ownership of your home, your name remains on the deed, and the title is yours. Once the home is sold or the reverse mortgage is paid off, any remaining funds belong to you and your heirs.

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2. You can receive and use your reverse mortgage funds however you like

Reverse mortgage funds can be delivered in a lump sum, fixed monthly payments, a line of credit, or a combination of the three. It all depends on the amount of equity in your home as well as your preference. No matter which way you receive the funds from your reverse mortgage loan, the IRS does not consider these loans to be income when it comes to your taxes.

When it comes to how your reverse mortgage money is spent, there are virtually no stipulations or fine print. Whether the money will go towards day-to-day expenses, healthcare, your grandchild’s college tuition, or even to fund the vacation of your dreams, your reverse mortgage money is yours for the taking. 

Do note that you may need to use a portion of your reverse mortgage funds to maintain your home and pay for property taxes or insurance, as these are still your responsibility. Additionally, the way you use these funds may affect your taxes. Always consult a tax specialist prior to spending your reverse mortgage funds.

3. Your payment plan is up to you

The beauty of a reverse mortgage is that there aren’t any monthly payment requirements, or even any prescribed payment schedule. Your reverse mortgage can be set up as an equity line or a fixed rate loan. That means you can pay on a monthly basis, you can make voluntary payments on your own schedule, or you can make no payments at all. Your reverse mortgage will become due once the last borrower sells the home, passes away, or no longer occupies the residence.

4. Reverse mortgages aren’t only for single family homes

Many different types of properties are eligible for reverse mortgages—not only single family residences. You may be eligible for a reverse mortgage if you own a multi-unit property, a townhome, or an FHA approved condominium. The most important stipulation is that you occupy at least one unit in the property, and that your home complies with safety codes. As long as those requirements are met, your residence may be eligible for a reverse mortgage.

5. When it comes to age of eligibility, there are exceptions to the rule

Recent changes to the rules regarding age of eligibility for reverse mortgages may be favorable to you if either yourself or your spouse is not yet 62. Previously, if one spouse was younger than 62, they had to be left off the loan to qualify. Because there weren’t strict protections on this spouse, it left the younger spouse responsible to pay the loan immediately if the older spouse passed away first.

In recent years, this rule was modified so that the non-borrowing spouse (the one under 62 years of age) can remain in the home in the event that the older spouse passes away. The only requirements are that the younger spouse must be designated as “spouse” on their tax documents and must continue to pay taxes. 

When it comes to your retirement, no one wants to outlive their money. With a reverse mortgage, you can live the retirement you’ve always dreamed of from the comfort of your home.

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