Definition: A Reverse Mortgage (RM) is a program that allows homeowners, age 62 and older, to borrow against the value of their home and delay repayment until they sell, transfer title, or no longer permanently reside in the property. RMs can be used to refinance an existing home or to purchase a new residence.
Qualifications: There are limited income and assets qualifications.
Payments: There are no required monthly principal and interest payments on a RM. Repayment is deferred until a maturity event occurs.
Non-Recourse: The loan is non-recourse – only the house can stand as repayment for a RM. No additional debt is left to heirs. Other existing assets can be safeguarded.
Ownership: The client retains full title to and control of the property. The home must be properly maintained plus the property taxes and hazard insurance must be paid.
Income Tax-Free Proceeds: Funds received via a RM are income tax-free and do not affect Social Security or Medicare benefits (seek professional advice for needs- based programs).
Tax-Deductibility: The interest is tax-deductible upon repayment. A RM can also be used to reduce a taxable estate (seek professional estate and tax advice).