How to Get a Reverse Mortgage

A reverse mortgage is a spectacularly simple but genius financial device available to seniors who are looking to get a few extra in cash.  The basic concept is this:  A senior who has all of the current mortgages on the house they are living in paid off - which is to say they have taken ownership of the house - can take out a reverse mortgage, which essentially reverses the process of a mortgage (shock, right?).  Which is to say that the equity in the house is then converted into cash and lent to the homeowner by the bank, meaning that the bank is slowly taking repossession of the equity within the house.  So rather than you slowly buying a house from the bank, the banks is slowly buying it back.  It is only available to seniors because it is created to allow them some further income from the equity in their house while they are in their retirement years, and because it makes it less predatory for the bank to take the house back when they die.  Usually, there's a term limit over which the reverse mortgage takes place, and when the bank finishes up that term, they own all of the equity in your house, but you do not necessarily owe them anything, because they've made back exactly what they've paid you.

Now, if you die before the loan is paid off, the bank only owns the amount of equity in the house that they paid you for, meaning that your heirs can take the equity still in your possession and reverse the process so that they can pay off the bank and take full control over it again.  The bank can not foreclose on a reverse mortgage, and they can not kick you or your heirs out as long as some remains in the house.  When you die, your estate pays the bank what they are owed, and if there is anything left due to the fluctuations in the housing prices, your heirs will get that money.  The bank won't kick them out, because the bank is even, but they will need to start paying off the bank in order to gain some of that equity.

In this way, the bank is able to keep a particular house in its balance sheet for generations, potentially, and the borrower gets money back from something they've already put money into.  It's an excellent deal.  The downsides are that the up-front costs of getting a reverse mortgage tend to be kind of high (around $10,000), and the interest rates might not be all that hot either. 

The basics for how to get a reverse mortgage are this:

-First, you have to be 62 years old at the very least.  If you are younger than this, you are not eligible for a reverse mortgage from any institution. 

-You must either own all of the equity in your house or have a very low balance remaining.  If you still have some remaining, you'll have to use the first money you get from the reverse mortgage to pay off the mortgage you have left over.  You also need to have a small to medium size home, with no more than $625,500 in equity in the house according to a HUD appraisal. 

And that's really more or less it.  That's all you really need to know about how to get a reverse mortgage.  Talk to your banker or financial advisor and ask them if it is the best choice for you.