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A Few Lessons About A Reverse Mortgage

Updated on August 5, 2011

Before you or a loved one considers applying for a reverse mortgage, try exhausting other options first – such as refinancing the home or selling the home. A reverse mortgage borrows against the equity of the home and must be repaid by the homeowner (or their beneficiaries) when the homeowner permanently moves out or sells the home. Because seniors (sixty-two years old and older) are the only individuals that qualify for a reverse mortgage, there are a lot of scam artists willing to tell home owners anything to make this loan sound sweet. Here are a few key points that should be known about reverse mortgages.

In order to qualify, homeowners must be at least sixty-two years old. If there two or more individuals on the title, everyone must be at least sixty-two years old. There is no credit check or an income guideline, the amount to be borrowed is base of the applicant(s)’ age, value of the home, and interest rate (which is added to the reverse mortgage). Reverse mortgages are only granted for the primary residence, even if the home isn’t paid off. However, it is required that the reverse mortgage be used to pay off the original mortgage or the homeowner pay off the original mortgage out of pocket.

Reverse mortgages are pricey due to high upfront fees (which can be monthly deductions taken from the home’s equity), closing costs (which can range from $10,000 - $15,000), and required mortgage insurance. The federal government requires counseling by approved consumer credit agencies before a federal insured reverse mortgage can be granted. If you decide against the reverse mortgage, the loan can be canceled in writing within three business days of closing (make sure to send written request by certified mail).

Interest is charged against the outstanding balance and added to the monthly repayment, meaning the amount owed on a reverse mortgage increases over time. Also, the interest is usually a variable rate that can change with market conditions. The interest paid on a reverse mortgage is not deductible on personal income taxes, only when the mortgage is paid in full.

If reverse mortgage assistance is wanted, such a service should not be paid for. The Federal Housing Administration (FHA) provides free referral of services, counseling, and information. The FHA can be contacted by phone at 1.800.225.5342 or by email at A home owner can also research a list of reputable reverse mortgage lenders for free at the National Reverse Mortgage Lender’s Association’s site.


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    • Deborah-Diane profile image

      Deborah-Diane 6 years ago from Orange County, California

      I am glad you encourage people to try to find other sources of income before turning to a reverse mortgage. Great advice.