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A reverse mortgage (also known as a Home Equity Conversion Mortgage or HECM) is a mortgage product available to qualified borrowers who are at least 62 years of age and have equity in their home. The mortgage works the opposite of a “forward” mortgage which is paid down over time in that it grows over time. The ideal candidate might be someone who owns a home free and clear (with no mortgage) and either wants to draw money to live on, take out a lump sum to fund an expenditure, or someone who wants the security of a line of credit.
As with any financial decision, you need to weigh all of the factors when deciding whether a reverse mortgage is a good choice for you.Â In addition to discussing this with your financial planner, you may want to include your children or heirs who would be inheriting your property as this can impact them as well.Â They might have some options that can help you accomplish your financial goals without losing equity in your property.
Once you have made the decision, you need to find a competent and qualified lender. Most mortgage lenders are not reverse mortgage lenders, so make sure to make it known up front that you are seeking advice regarding a reverse mortgage.Â Asking a friend in a similar age bracket might lead you to open the discussion with a friend about whether or not they have had a good experience with a reverse mortgage lender, but of course it is a sensitive topic, so some may not want to share. Your bank or financial planner should have a trusted relationship with someone they can refer you to.
It is important that you fully understand the pros and cons before making any financial decision.Â In fact,Â one of the requirements is meeting with a HUD Counselor to discuss the matter. Â As a primer, I recommend reading theÂ Federal Housing Administration (FHA) online guide to reverse mortgages for seniors.