Top 5 Facts to Know for Seniors Considering a Reverse Mortgage

The reverse mortgage is a useful tool that can successfully support seniors during their retirement years – it’s a way to use your biggest asset, your home, for consistent income over the course of decades.

While reverse mortgages have supported hundreds of thousands of seniors’ retirement budgets, they don’t come without a certain level of risk and it’s not “free money,” as many lenders would like you to believe. It’s important to know how a reverse mortgage works and whether or not it’s right for you before you start discussions with a lender.

What Is a Reverse Mortgage?

A reverse mortgage lets adults age 62 or older use their home equity to receive a lump-sum payment or regular monthly disbursements equal to up to 80 percent of the value of their home, without having to pay it off until they die, move or sell the property.

Also called a Home Equity Conversion Mortgage (HECM), you must own your home outright or have a low mortgage balance that can be paid off with the proceeds from the loan. The home must be your primary residence and you have to continue to pay property tax and insurance, as well as maintain the property.

Unlike a home equity line of credit, which requires borrowers to make monthly payments with interest, you do not have to make any payments on a reverse mortgage, though the principal plus interest must be repaid when the homeowner dies, sells the home or no longer uses the property as their primary residence.

To better understand the details of a reverse mortgage, here are five key facts that could influence your application decision:

  1. Disbursements Are Tax-Free

Whether you elect to have the money disbursed all at once, in regular monthly increments or you’d like to draw on the funds when you need them, you are never taxed on the payments. It does not affect your eligibility for Social Security and does not count as income.

  1. You Control How the Money Is Used

Seniors use reverse mortgage funds for a wide selection of reasons. From home improvements such as a roof replacement to ongoing expenses like in-home healthcare assistance, you have complete control over the money you receive from a reverse mortgage.

  1. You Need to Know Your Obligations

Since these loans are regulated by the U.S. Department of Housing and Urban Development (HUD), you must undergo HUD counseling and receive a certificate of completion, which should be included in the application package to your lender. This gives you a chance to ask questions and ensure it’s the right financial move for you.

  1. Factor in Closing Costs

There are additional charges such as closing costs that you should take into account. While you may not have to pay these charges out-of-pocket, it makes it sensible to stay in the home as long as possible after getting a reverse mortgage in order to get the most for your money.

  1. It Could Affect Medicaid Eligibility

While it won’t affect Social Security or Medicare eligibility, the funds you receive from a reverse mortgage can make it impossible for you to receive Medicaid due to the income and asset requirements of the program.

Want to find out more about how to work out your retirement budget, including healthcare costs? Talk to a My Senior Health Plan representative today and get smart, experienced counsel from a team that cares.

Pete Blasi