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Overview

Surviving Debt is available to all for free during the COVID-19 emergency. Navigate using the Table of Contents on the left sidebar to access the text. To purchase Surviving Debt (available in print or as an ebook) visit the NCLC bookstore.

For households struggling to pay all their bills, and where at least one of the homeowner’s is 62 years old, one option to consider is a reverse mortgage. A reverse mortgage differs from a traditional mortgage because the borrower receives a lump sum or a stream of payments, but does not make monthly payments on the loan. Instead, over time the balance due on the reverse mortgage grows, as the monthly interest and other fees are added to the loan balance. The loan is called a “reverse” mortgage because the balance goes up over time, instead of going down. No payment is due on the reverse mortgage until the borrower dies or moves out of the home, at which time the full loan balance becomes due.

A reverse mortgage can provide cash to the homeowner, eliminate payments on a pre-existing mortgage, and allow the homeowner to remain in the home (as long as the homeowner can pay for property taxes, insurance, and necessary repairs). Contrary to some misconceptions, the borrower on a reverse mortgage is still the owner of their home, although the lender will be permitted to foreclose if the loan is not paid off within a period of time after the borrower’s death.

Reverse mortgages are not for most homeowners. They are expensive—high closing costs and interest rates higher than standard prime mortgages. Once the equity has been drawn down through a reverse mortgage, it may not be possible to draw against the home again to pay for necessary expenses, such as home health care. Worst of all, some reverse mortgages are scams, so borrowers should get all the information up front and seek independent advice before signing on the dotted line.

This chapter explains who is eligible, how the reverse mortgage operates, the impact of others in the household, and whether it is a good idea.