Reverse Mortgage
A Reverse Mortgage is designed to provide cash flow to senior homeowners without requiring monthly principal and interest payments.
The only version insured by the U.S. Federal Government is the Home Equity Conversion Mortgage (HECM), available through FHA-approved lenders.
Pros
- No monthly mortgage payments are required. (Borrower must still pay property taxes, insurance, and maintenance.)
- Proceeds are generally tax-free.
- Non-recourse loan: Borrower/heirs are not liable if the loan balance exceeds the home's value.
- Title is retained, provided the borrower pays required taxes and insurance.
Cons
- Loan balance increases over time due to compounding interest and fees.
- Financing costs and associated fees are typically higher than other financial products.
Because of the complexity, participation in HUD-approved housing counseling is mandatory before approval. Funds can be disbursed as a lump sum, installments, or a line of credit.
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