How Does a Reverse Mortgage Work?

How does a reverse mortgage work?

A reverse mortgage is a government-insured loan that works by trading your equity for cash payments. The program is named reverse mortgage because you aren’t paying mortgage payments to the lender.

On the contrary, the lender will be paying mortgage payments to you.

Once you meet with a lender and apply for a reverse mortgage, they will be able to tell you exactly how large a payment you can receive. Depending on your choice, you will then receive that payment in one large single sum, smaller payments each month, or a line of credit. You can use this cash in any way you see fit and you will no longer have to pay mortgage payments.

You will be the owner of your home for the entire duration of the loan. The loan will only expire when you move or pass away. Because you are exchanging equity for cash, the lender will have equity in the home when the loan is due.

You or your heirs will have two options once the loan becomes due.

  • Pay the balance of the loan and maintain ownership of the home
  • Sell the home and receive payments for any remaining equity you had in the home
reverse mortgage work

As long as you are living in the home, you CANNOT lose your home or be forced to leave. Because HECM is a government-insured program, you are protected against changes in property value that would normally affect the length of the loan. The government created this program, so that you can continue to live in your home for the rest of your life worry-free.