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How Does a Reverse Mortgage Work?

By definition, a reverse mortgage loan — also known as a home equity conversion mortgage — allows you to borrow against the equity you’ve built up in your home if you’re age 62 or older. Insured by the Federal Housing Administration, an HECM loan provides funds to help pay for the things you need or want — while you continue to live in and retain ownership of your home. Learn more to find out whether reverse mortgages are a good deal for seniors.

Reverse Mortgage vs. Conventional Mortgage

How does a reverse mortgage work? Unlike a conventional mortgage or home equity loan, an HECM offers a flexible repayment feature so you can better control your monthly expenses and cash flow. No minimum monthly loan payment is required; you can choose to pay as much or as little as you like each month. The loan doesn’t have to be repaid until you sell the home, pass away or move out. But you can also pay down the loan at any time, with no penalty — the choice is yours.

If you have an existing first or second mortgage on your home, don’t be discouraged — you might still be eligible. In fact, many homeowners use an HECM as a way to continue owning and living in their home with greater financial flexibility.

Related: Apply for a Mortgage Loan Today

Who Can Get a Reverse Mortgage?

You must meet these requirements in order to qualify for a reverse mortgage:

Also, your home must be your primary residence and meet U.S. Department of Housing and Urban Development minimum property standards. Houses and most condos qualify, and homes with existing mortgages might, too.

Related: How to Negotiate a Lower Modified Mortgage Loan

How to Get a Reverse Mortgage

Aside from meeting the aforementioned requirements, getting a reverse mortgage has other conditions. To get a reverse mortgage, you must:

  1. Fill out an application
  2. Have a pre-loan consultation with an independent, FHA-approved reverse mortgage counselor
  3. Undergo a financial assessment

These consultations ensure that prospective borrowers understand whether a reverse mortgage is appropriate, and allow them to confirm their ability and willingness to meet loan obligations. Prospective borrowers should feel comfortable asking any questions so they can get information that helps them to understand exactly how a reverse mortgage works, and to determine if it is actually the best product for them.

Here are some questions to ask before taking out a reverse mortgage:

Pros and Cons of Reverse Mortgages

In recent years, enhancements have been made to the HECM program. As a result, financial advisors and other trusted professionals have discovered that a reverse mortgage can be used in different ways as an effective part of a sound retirement funding strategy that can help people live with greater financial flexibility.

For example, today’s HECMs can help homeowners aged 62 and older avoid tapping into their nest eggs at retirement age or in the early years of retirement. Using a reverse mortgage — especially one with lower up-front costs such as the low-cost credit line option offered by Reverse Mortgage Funding LLC — can significantly extend their retirement income, improve their lifestyles, help retirees maximize their Social Security benefits, and live the retirement they’d always imagined.

Check Out: 10 Best Reverse Mortgage Lenders for Seniors

Pros of a Reverse Mortgage

Reverse mortgages offer a number of positive features, including the fact that you can continue to own and live in your home. Before taking the plunge, understand all the advantages of such a financial plan so you can better see how it might work for you.

Here are some advantages of an HECM loan:

See: 7 Tips to Refinance a Mortgage With Bad Credit

Cons of a Reverse Mortgage

To determine whether an HECM is the right solution for you, you should understand that challenges of this kind of loan. Here are some disadvantages to expect with a reverse mortgage:

Some lenders, such as Reverse Mortgage Funding LLC, a leading reverse mortgage lender, offer a low-cost pricing option, which eliminates nearly all origination and closing costs. But as with any home-secured loan, you’ll still be responsible for paying property-related taxes, HOA fees, homeowners insurance and other policies, and upkeep costs.

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Disclaimer: The author is not licensed to originate or solicit mortgage loans. 2017 Reverse Mortgage Funding LLC, 1455 Broad Street, 2nd Floor, Bloomfield, NJ, 07003, 1-888-494-0882. Company NMLS ID: #1019941 (www.nmlsconsumeraccess.orghttp://www.nmlsconsumeraccess.org). Arizona Mortgage Banker License #0927682; licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act; loans made or arranged pursuant to a California Finance Lenders Law; Georgia Mortgage Lender Licensee #36793; Illinois Residential Mortgage Licensee; Massachusetts Mortgage Lender License #ML1019941; licensed by the New Jersey Department of Banking & Insurance; Rhode Island Licensed Lender; Texas Mortgage Banker Registration in-state branch address 6044 Gateway East, Suite 236, El Paso, TX, 79905. Not intended for Hawaii and New York consumers. Not all products and options are available in all states. Terms subject to change without notice. Certain conditions and fees apply. This is not a loan commitment. All loans subject to approval. L820-Exp022018.