A reverse mortgage is a loan that enables seniors who owns a home and is 62 years and older, to convert a portion of his/her home equity into tax-free* income. A reverse mortgage lender pays you with the equity you built over the years while you continue to enjoy living in the comfort of your own home.

HOW DOES REVERSE MORTGAGE WORK?

Here is a high-level summary of how a reverse mortgage works:

• You are homeowner, 62 years or older, with a small amount of money left pay on your house.  You would like to have more income, but you can’t afford to refinance your house and pay the forward mortgage lender monthly payments.  Moving out and selling your home is the last option on your mind.
• You contact a reverse mortgage lender and they determine based on your age, home value, interest rates and where you live, how much money they can give you.
• You continue to live in your own home and you still own it, not the lender.  The only change is that you will receive payments from the bank to use on whatever you would like to.
• You pay back the loan, with interest, when you leave your home. You can never owe the lender more than what the current value of your home is since it is insured.

You may have encountered some people who firmly believe that reverse mortgage lenders owns your home or how reverse mortgages are only for desperate seniors. Unfortunately, those people are unaware of how reverse mortgages really work. To throw out all of the common rumors, here are the Top 5 Common Misconceptions of Reverse Mortgages…

1)  THE BANK OWNS YOUR HOME.

False.  The lender does not own your home.  In fact, you will still retain the title to your home when you have a reverse mortgage.   As long as you keep your property taxes and insurance up-to-date and paid, the lender cannot foreclosure on you.   That’s the truth!
 
2)  WHEN THE REVERSE MORTGAGE LOAN BECOMES DUE, THE BANK SELLS YOUR HOME.

False.  The choice is actually up to you.  When it is time to repay the reverse mortgage loan, you have various options of paying the balance that is due to the bank.   These options include paying the balance of the loan and staying in your home or sell your home and use the money to repay the loan.  This common misconception is likely sparked from the fact that many seniors choose to sell their home pay off their loan, which makes sense since you will begin to pay the loan only when you leave.   Why keep a house that you’re not living in?  
 
3)  IF YOU HAVE POOR CREDIT, REVERSE MORTGAGE IS NOT AN OPTION.

False.  Credit scores have very little to no weight in determining your eligibility for a reverse mortgage. It is extremely rare to be denied a reverse mortgage loan based on your credit.   The reason why lenders will pull a credit report on you is to make sure you don’t owe any money (generally taxes) to the government.  Even if you do owe some money to the government, you can use part of your reverse mortgage loan to pay it all off!  
 
4)  YOU HAVE TO BE DEBT FREE TO GET A REVERSE MORTGAGE.

False.  One of the major benefits of a reverse mortgage loan is that you can actually use the cash you receive from the loan to pay off any debt.   You can even use it to pay your remaining balance of your forward mortgage.  If that is the case, your reverse mortgage lender will first determine how much money they can give you and then deduct the amount to pay off your forward mortgage.   The amount remaining is for you to use at your discretion, letting you take that vacation you’ve always wanted! 
 
5)  REVERSE MORTGAGES ARE ONLY FOR SENIORS WHO ARE DESPERATE AND ARE ”HOUSE RICH AND CASH POOR”.

False.  A reverse mortgage is an excellent financial planning tool that allows seniors to enhance their lives by having tax-free income* to use whenever they want and on whatever they want.   Reverse mortgages allows seniors to feel more secure, knowing that money is available to use if they need it on medical bills, home-repairs, your favorite charities or even vacations.

In a regular mortgage arrangement, you can take out a loan to be able to purchase your own home. In a REVERSE MORTGAGE LOAN OPTION, you receive money from the reverse mortgage lender in exchange for the value of your home equity (or your home, if you own it entirely).

A reverse mortgage lets you convert home equity back to cash for use in daily living, as retirement income or as money for medical expenses, grand vacation, your children’s school tuition, and other big expenses.
 
The reverse mortgage is exactly the reverse of the regular home mortgage: 

REGULAR HOME MORTGAGE
You convert cash to home equity; for people starting out to build their home equity.
REVERSE HOME MORTGAGE
You convert home equity back to cash; for people who wish to enjoy their home equity investment.
 
Reverse Mortgage vs. Home Equity Loans
A reverse mortgage loan is somewhat similar to the home equity loan that you may have heard about or taken out before. 
 
In a home equity program, your home equity is collateral for a lump sum loan or line of credit.  After you get your loan, you are expected to commence with your monthly payments.
 
In a reverse mortgage arrangement, though, you will get money from your home equity, but you are not expected to begin paying immediately.

A reverse mortgage enables seniors to borrow the equity they built in their home over the years. The difference between a reverse mortgage loan and a home equity loan is that with a reverse mortgage, you don’t make the same monthly mortgage payments as you would with a home equity loan. In fact, the bank will pay you to live in your home and you don’t have a to pay a dime back until you leave your home.

 The following list will help you identify most of the major pros and cons of a reverse mortgage.
 
REVERSE MORTGAGE PROS AND CONS: 

• PROS:  Tax-free income.  One of the biggest advantages of a reverse mortgage is that you can use the equity from your home as tax-free income*.  If you choose the monthly payment option (payment from the lender to YOU, that is), you will have a guaranteed source of income for the rest of your life.
• CONS:  Terminology.  A lot of real estate terminology is used when referring to a reverse mortgage.  You’ll hear it from your reverse mortgage counselor, lender, financial advisors and family members.  This may all be confusing at first to understand the difference between a HECM and Home Keeper, or what the 203-b limit is for your neighborhood is, but RMhelp.org was designed and developed with seniors in mind and will always be here to answer all of your questions.
• PROS:  Home ownership.  Perhaps the best pro of a reverse mortgage is that you will continue to live in your home and be the sole owner of it.  The bank does not own your home when you take out a loan.
• CONS:  Fees.  The fees associated with a reverse mortgage are slightly higher than that of the traditional forward mortgage loan that you likely used to purchase your home. The good news is that you can usually pay the fees with the loan itself, which many borrowers end up doing.  Also, the Federal Truth in Lending Act requires reverse mortgage lenders to fully disclose all of the costs and terms associated with the reverse home equity loan.
• PROS:  No impact on Medicare and Social Security eligibility.  That’s right.  A reverse mortgage will not impact your eligibility on Medicare or Social Security.  It is always advisable to visit a financial advisor for the details prior to taking out the loan.
• CONS:  Property tax and insurance. Another con of a reverse mortgage is that you are responsible for still paying for your property tax and insurance.  You can always use the income from the reverse mortgage to pay for it.  If you fail to pay your property tax and/or insurance, you may be required to payback the loan earlier.
• PROS:  No income requirements.  Since a reverse mortgage pays you tax-free income, there are no income requirements when you take out a loan.  Remember, that lender pays you to live in your home!
• CONS:  Age.  Reverse mortgages are limited to those who are 62 years old or older.  Unfortunately, if you’re 61 and ½, you still will not qualify for the loan.
• PROS:  Bad credit, no problem!  Your credit score has no bearing on your eligibility for a reverse home equity loan nor affect the calculation of your loan value.  Your home value is based on your age, current interest rates and property value.

To read more about reverse mortgages, visit our reverse mortgage information center here.

With a fixed source of income (or even no income) and rising living expenses, it has become difficult for some seniors in Arizona to pay for their necessities.   With the help of a reverse mortgage, seniors will not only be able to pay off any bills, but they will also regain financial independence.
  
WHAT ARE REVERSE MORTGAGES? 
A reverse mortgage is when the equity value of the house is converted into cash.  This cash is paid to the borrower in the form of a loan. It is called a “reverse mortgage” because instead of you paying the lender monthly mortgage payments, the lender pays you to live and own your home. The homeowner only needs to pay back the loan when he/she leaves the property, or fails to pay for property taxes or homeowner insurance.
 
Arizonians are rapidly realizing the benefits of a reverse mortgage and are now using it to their advantage to pay off debts or even take that vacation that they have always dreamed of.
  
PROS AND CONS
 
Pros of reverse mortgages in Arizona:

• Own your home:   With a reverse mortgage, you own your home, not the lender.
• No income or credit requirements:   Income and credit will not impact your ability to qualify.  So if you have bad credit, no credit, or even no income, you should still apply for the loan.
• Tax-Free Income:   One of the biggest advantages of a reverse mortgage, you will not be taxed on the money the lender pays you.

Cons of reverse mortgages in Arizona are:

• Fees:   There are a handful of fees that the borrower needs to pay associated with the loan.  The good news is that the fees are usually wrapped up in the loan, which means your home’s equity will cover these charges.
• Compound interest:   For most of the reverse mortgages, interest on the loan compounds.