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What is a Reverse Mortgage?

If you have found yourself wondering ‘what is a reverse mortgage’ or ‘is a reverse mortgage right for me,’ you have come to the right place. There is a great deal of information about reverse mortgages below or you can contact a reverse mortgage consultant at Cobalt Mortgage to discuss whether a reverse mortgage may be the right option for you.

A Simple Answer to ‘What is a Reverse Mortgage’

In plain English, a reverse mortgage is a home equity loan that allows senior homeowners, 62 years or older, to access a portion of their home equity and convert it into tax-free* retirement loan proceeds. Unlike a traditional mortgage, you are not required to make monthly mortgage payments on the reverse mortgage but rather the lender will make payment(s) to you or provides a line of credit for your use. (You will need to continue your obligations to pay your property taxes, homeowner’s insurance, and any homeowner’s dues and maintenance.)

With a reverse mortgage you may be able to:

  • Add to your monthly retirement income
  • Pay off bills
  • Pay for medical expenses
  • Make home improvements
  • Cover unexpected expenses
  • Make your home more accessible
  • Use for other priorities in your life

* We recommend that you speak to a qualified tax advisor.

Additional Reverse Mortgage Information

  • You do not give up ownership to your home: With a reverse mortgage, the title to the property will remain in your name.
  • There are no prepayment penalties: A reverse mortgage can be paid off at any point without incurring a prepayment penalty. This allows you or your heirs to sell the property or payoff the mortgage at any time.
  • A reverse mortgage is a non-recourse loan: If the loan balance is greater than the value of the home at the time the property is sold, the lender cannot seek to recover the additional loan balance from you, the co-borrower, or the assets of your estate.
  • Repayment not required until you sell, pass or move: A reverse mortgage does not become due as long as you or the last surviving borrower continues to own the home and lives in the home as a primary residence. You will need to remain compliant with the terms of the reverse mortgage, which include but are not limited to maintaining the home in good working condition and keeping current on property taxes, homeowners insurance, and any homeowner’s dues.

Basic Qualifications

Borrower eligibility typically includes:

  • Homeowners who are vested owners on title must be aged 62 and older. Reverse mortgages are available to US citizens and permanent residents.
  • You must own your home. Reverse mortgages are available if you have an existing mortgage balance. However you will need to pay it off with the proceeds of the reverse mortgage or have other qualified sources.
  • You need to live in your home as your primary residence.
  • You must attend federally mandated independent third-party counseling through a HUD-approved counseling agency.

Property Eligibility typically includes:

  • Reverse mortgage loans are available for the following property types: single family; 2-4 unit homes (you must occupy 1 unit as your primary residence); HUD-approved condominiums.
  • Your home must meet FHA minimum property standards. If your home requires repairs and you are acquiring a traditional reverse mortgage refinance, there may be proceeds available to have these completed through the reverse mortgage.

The maximum loan amount you qualify for is based on your age or that of the youngest borrower, current interest rates, your home’s value, your equity in your home and the maximum lending limit allowed by FHA. See an estimate of how much you may qualify for with our Calculating a Reverse Mortgage.

Learn More About Reverse Mortgages

If you would like to learn more, please contact a reverse mortgage consultant at Cobalt Mortgage. Our goal to work closely with all of our clients in order to ensure that each of your questions are answered.