A reverse mortgage is a specialized type of loan available to homeowners who are typically aged 62 or older, allowing them to convert a portion of their home equity into loan proceeds. Unlike a traditional mortgage, where borrowers make monthly payments to the lender, with a reverse mortgage, the lender makes payments to the borrower.

Key features of a reverse mortgage:

• Eligibility: To be eligible for a reverse mortgage, homeowners must typically be 62 years of age or older and have sufficient equity in their primary residence. The property must be a single-family home, a multi-unit property (up to four units), or an approved condominium or manufactured home.
• Loan Proceeds: With a reverse mortgage, homeowners can receive loan proceeds in various forms, including a lump sum, monthly installments, a line of credit, or a combination of these options. The loan proceeds can be used for any purpose the homeowner chooses.
• Repayment: Unlike a traditional mortgage, a reverse mortgage does not require monthly repayments. Instead, the loan is typically repaid when the homeowner moves out of the home, sells the property, or passes away. At that point, the loan balance, including accrued interest and fees, is generally paid off through the sale of the home. If the sale proceeds exceed the loan balance, the excess funds go to the homeowner or their heirs.
• Home Ownership and Responsibilities: With a reverse mortgage, homeowners retain ownership of the home and are responsible for property taxes, insurance, and maintenance. Failure to meet these obligations could potentially lead to foreclosure.
• Loan Amount: The loan amount available through a reverse mortgage is based on factors such as the homeowner's age, the value of the home, current interest rates, and the chosen payout option. Generally, the older the borrower and the higher the home value, the larger the loan amount.
• Loan Costs: Reverse mortgages have associated costs, including closing costs, mortgage insurance premiums, and origination fees. These costs are typically financed as part of the loan and decrease the available loan proceeds.
• Non-Recourse Loan: Reverse mortgages are "non-recourse" loans, which means that the borrower (or their heirs) is not personally liable for repayment beyond the value of the home. If the loan balance exceeds the home's value, the lender generally cannot seek additional repayment from the borrower or their estate.
• Counseling Requirement: Before obtaining a reverse mortgage, homeowners are required to receive independent counseling from a HUD-approved counselor. This counseling helps borrowers understand the costs, benefits, and potential implications of a reverse mortgage.

Reverse mortgages can provide older homeowners with a way to access the equity in their homes, increase cash flow, and enhance their financial security. However, it's important for borrowers to carefully consider the implications, costs, and potential impact on their long-term financial goals. Consulting with Mission Pacific Mortgage and your financial advisor or one of our Financial Planning partners can help homeowners make an informed decision about whether a reverse mortgage is suitable for their circumstances.