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Reverse Mortgage

A reverse mortgage is a type of home loan that allows the homeowner to convert part of their home equity into cash. Reverse mortgages differ from standard home equity loans or second mortgages because no repayment is required until the borrower moves out of the home (or no longer uses the home as a principal residence). Rather than making monthly payments to your lender, as you would with a traditional mortgage, you receive money from the lender. You do not have to repay this until you die, sell your home, or choose a different principal residence. Reverse mortgages can assist homeowners who have valuable homes but little cash. To be eligible for most reverse mortgages, you must be at least 62 years old and live in your home. The proceeds of a reverse mortgage are typically tax-free, without income restrictions.

Reverse mortgages fall into three general categories: single-purpose reverse mortgages, offered by certain state and local government agencies and non-profit organizations; federally-insured reverse mortgages, Home Equity Conversion Mortgages (HECMs), which are provided by the US Department of Housing and Urban Development (HUD); and proprietary reverse mortgages which are provided by private companies.

Reverse mortgages carry origination fees and closing costs, as well as servicing fees throughout the life of the mortgage. The amount owed on a reverse mortgage typically grows over time while interest is charged on the outstanding balance and added to your total debt each month. Reverse mortgages can have fixed rates, but variable rates are more common. You retain the title to your home, which means that you will still be held responsible for utilities, insurance, property taxes, fuel, maintenance and other costs.