The American dream of owning a home brings about feelings of excitement and stress. For the better part of 30 years, a mortgage payment means you get to keep a roof over your head. One day looking forward to when you can say you have paid off your mortgage.
Many older Americans find that when that day finally arrives, a different type of expense starts to creep in—the cost of caring for yourself as you age. Medical expenses increase, and for many people, income starts to wain. Wouldn't it be nice to have additional cash to pay for these expenses and not affect your quality of life?
That is where a reverse mortgage comes in. It lets you put your home's equity to work and offset some of those heavier financial burdens later in life.
There are few qualifications to be eligible for a reverse mortgage. The two primary qualifying criteria are the age of the youngest borrower and equity. In Nevada, individuals aged 55 and up are eligible for a reverse mortgage.
The amount of equity you must maintain in the home is calculated based on your age. The younger you are, the more equity is needed, and vice versa.
The property must be the borrower’s primary residence. Vacation homes and rental properties do not qualify for a reverse mortgage. You must also live in your home for the duration of the reverse mortgage to maintain eligibility.
Reverse mortgages are also unique in not requiring minimum credit scores or extensive income verifications to secure the loan. These standard loan requirements are unnecessary because the property's equity value backs the loan.
How is the equity paid to me?
Proceeds paid through a reverse mortgage are dispersed in one of six ways.
- Term payments are equal monthly payments given to the borrower for a predetermined length of time.
- A line of credit is similar to a traditional mortgage line of credit. Money is accessed as needed, and interest is accrued on the amount withdrawn.
- Term payments plus a line of credit combine equal monthly payments and the flexibility of a line of credit.
- Equal monthly payments are similar to term payments, with the monthly payments paid to the borrower for the entire time the borrower lives in their home.
- Equal monthly payments plus a line of credit combines the above equal monthly payments with a line of credit.
- A lump sum payment is paid one time at the close of the loan and comes with a fixed interest rate.
Frequently asked questions
- When does the loan have to be paid back?
- Repayment of the loan becomes due after all the homeowners have passed away or moved out of the property.
- Does the bank own the home?
- No, the bank provides the loan against the equity in the home. The loan is repaid when the mortgage is paid at the time of the sale of the house.
- Who inherits the home?
- The estate will inherit the home, and heirs to the estate can repay the loan and retain the property.
- Is a reverse mortgage similar to a home equity loan?
- Any homeowner can apply for a home equity loan. In Nevada, homeowners applying for a reverse mortgage must be at least 55 years old.
- Borrowers repay home equity loans over 5 or 10 years. Reverse mortgage payments to the borrower continue until the borrowers pass away or move out of the property.
- Closing costs for reverse mortgages are financed as part of the loan.
Common Myths & Truths
Myth: The bank will own my home.
Truth: Reverse mortgages are similar to other home loans in that you retain your home as long as you meet your loan requirements. Those requirements are paying property taxes, homeowners insurance, keeping up with maintenance on the property, and any homeowners association fees. The requirements are no different from the needs of a traditional mortgage.
Myth: I don't qualify because I have a mortgage.
Truth: Having a mortgage payment will not prevent you from being eligible for a reverse mortgage. If the equity in the home is high enough and you meet the eligibility requirements, you can qualify. The proceeds from the reverse mortgage would pay off the existing mortgage. Alleviating your monthly mortgage payment and freeing up funds to use elsewhere.
Myth: My spouse will be left without income after I pass away.
Truth: Similar to the myth that the bank will own your home if you process a reverse mortgage. Your surviving spouse is eligible for the same benefits of a reverse mortgage as long as they meet the loan requirements. They maintain the payments on property taxes, homeowners insurance, and any homeowners association fees.
Whether or not they are a co-borrower or a non-borrowing partner will determine if they have access to additional mortgage funds.
Is a reverse mortgage right for me?
If you are a qualifying individual looking for supplemental income, the equity in your property could be the way to go.
A reverse mortgage is a great way to help subsidize the cost of in-home care for Seniors who own their home.
The equity can cover other living expenses, eliminate the monthly mortgage payment, and free up money to pay for services that keep you in your home.
Questioning if a reverse mortgage is a right for you?