A reverse mortgage is a special loan for homeowners who are 55 years old or older. It lets you turn some of the money tied up in your home (called equity) into cash, while you still live in your home. Here’s how it works in simple terms:

Key Points:

• How It Works: Instead of paying the lender every month like with a regular mortgage, the lender pays you. You can receive this money as a lump sum, monthly payments, or a line of credit.

• When It’s Repaid: The loan is paid back when you sell the home, move out, or pass away.

• Eligibility: To qualify, you must be at least 55 years old, own your home (either outright or have a low mortgage balance), and live in the home as your main residence.

• Types: There are different types of reverse mortgages, including:

  • Home Equity Conversion Mortgages (HECMs): These are government-backed and the most common.
  • Proprietary Reverse Mortgages: Offered by private lenders.
  • Single-Purpose Reverse Mortgages: Designed for a specific use, like home repairs.

• Costs: There are costs involved, such as origination fees, closing costs, and insurance premiums. These costs are usually added to the loan balance, which means they will be deducted from your home’s value when it’s sold.

A reverse mortgage is repaid when specific maturity events occur, such as the homeowner’s death, sale of the home, permanent move to another residence, or failure to meet loan obligations like paying property taxes and insurance. The total repayment amount includes the loan principal, accrued interest, mortgage insurance premiums (for FHA-insured loans), and any associated fees. Repayment typically happens through the sale of the home, with the proceeds used to pay off the loan balance. If the sale proceeds exceed the loan amount, the remaining equity goes to the homeowner or their heirs. Alternatively, the loan can be repaid using other funds, such as savings or refinancing with a traditional mortgage.

Reverse mortgages are non-recourse loans, meaning the lender can only seek repayment from the home’s sale proceeds, not from the borrower’s or heirs’ other assets. Heirs have options to sell the home, keep it by repaying the loan balance, or allow the lender to sell it. Consulting with a financial advisor or reverse mortgage counselor can provide more personalized insights.

A reverse mortgage does not impact Social Security or Medicare benefits, as these are not based on income or assets. Social Security retirement benefits and Social Security Disability Insurance (SSDI) remain unaffected since the proceeds from a reverse mortgage are not considered income.

Likewise, Medicare eligibility is not influenced by receiving reverse mortgage funds. However, for means-tested programs like Supplemental Security Income (SSI) or Medicaid, while the reverse mortgage proceeds themselves are not counted as income, any funds retained beyond the month of receipt could be considered assets and potentially affect eligibility.

To prevent this, it’s advisable to use the funds within the same month they are received. Consulting with a financial advisor can help ensure that reverse mortgage proceeds do not interfere with means-tested benefits.