Informactic

A reverse mortgage allows homeowners (typically 62+) to convert home equity into cash without selling their home. Instead of making monthly payments to the lender, the lender pays you—either as a lump sum, monthly payments, or a line of credit.

Key Features of a Reverse Mortgage

1. No Monthly Mortgage Payments
   • You retain ownership but repay the loan when you move out, sell, or pass away.
2. Loan Amount Depends On:
   • Home value
   • Borrower’s age (older = higher payout)
   • Current interest rates
   • Federal lending limits (e.g., 2025 HECM limit: $1,149,825)
3. Funds Can Be Used For:
   • Retirement income
   • Medical bills
   • Home repairs
   • Debt payoff

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How to Calculate a Reverse Mortgage Payout

Use a reverse mortgage calculator (e.g., AARP’s or NMLS) with these inputs:

• Home Value (300,000,300,000,500,000, etc.)
• Borrower’s Age (62+)
• Current Interest Rate (e.g., 6.5% in 2025)
• Loan Type (HECM, proprietary, or single-purpose)

Example Calculation:

• Home Value: $500,000
• Borrower Age: 70
• Interest Rate: 6.5%
• Estimated Payout: 1,800–1,800–2,500/month (or $250,000 lump sum)

(Note: Actual amounts vary by lender and fees.)

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Pros & Cons of Reverse Mortgages

✅ Pros:

• No monthly mortgage payments
• Tax-free cash flow
• You keep home title
• Non-recourse loan (heirs aren’t personally liable if home value < loan balance)

❌ Cons:

• High upfront fees (origination, MIP, closing costs)
• Interest compounds over time
• Reduces inheritance for heirs
• Must maintain home (insurance, taxes, repairs)

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When Does the Loan Get Repaid?

The reverse mortgage becomes due when:

1. The last borrower (or eligible non-borrowing spouse) dies.
2. The home is sold.
3. You move out (e.g., nursing home for 12+ months).
4. You default (fail taxes/insurance).

Heirs can:

• Sell the home to repay the loan.
• Refinance into a traditional mortgage.
• Let the lender sell it (if equity remains, heirs keep the difference).

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2025 Reverse Mortgage Trends

• Rising Interest Rates → Lower payouts for borrowers.
• Stricter Counseling Rules → HUD requires mandatory counseling.
• More Fintech Options → Digital reverse mortgage applications.