Mortgage Refinancing - Reverse Mortgage for Retirement Income

A reverse mortgage is a popular, but complex, home loan just for senior homeowners. It is an option for older homeowners to supplement their retirement income and still enjoy life in the home they’ve grown to love. The reverse mortgage allows seniors to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

In a regular mortgage, you make monthly payments to the lender. But in a reverse mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.

A reverse mortgage is exactly what its name implies—a loan whose features make it essentially the reverse of a traditional "forward" mortgage. Instead of paying your lender, your lender pays you. Instead of reducing your debt as the loan term progresses, you increase it. Instead of turning your income into equity, you turn your equity into income.

The monthly payments you made to pay off your original mortgage generally served a common purpose—to decrease your debt and increase your equity. The payments you receive with a reverse mortgage have exactly the opposite effect—they increase your debt and decrease your equity.

The ability to turn your equity into income is what most distinguishes a reverse mortgage from other loans, and it's what makes it so valuable to many senior homeowners. Having spent years repaying the mortgage that allowed you to buy your home, you can now tap into that investment to help you achieve your goals later in life. However you plan to use your equity—whether traveling, paying medical expenses, improving your home or just adding a bit of cushion to your monthly budget—you will have a golden opportunity to put your nest egg to good use.

Reverse mortgages are still largely unknown to many seniors, but they are gaining in popularity. The loans are not for everyone. They require borrowers to shoulder substantial fees, which are not always readily visible since they are built into the loan itself. The amount of cash available to homeowners can also vary greatly, depending on their age, the value of their house, where they live and fluctuations in interest rates.