The Type Of Mortgage Loan You Should Keep In Mind If You're Retired

Retirees often find themselves looking for more money to help them through the many expenses of their golden years. A number of these costs turn out to be unplanned due to unforeseen expenses including home improvements or repairs, medical costs, or in-home care. One practical and smart solution for dealing with unanticipated events during retirement is a reverse mortgage loan.

Reverse mortgages are special types of loans that offer tax-free payments to the home owners based on the home equity. Typically a reverse mortgage will pay down the existing loan for homeowners who are 55 years or older. They can then receive these non-taxable payments from the reverse mortgage lender through borrowing money against the equity in the house.

Two types of reverse mortgages exist, and they come with specific rules. To be eligible, homeowners must have a significant amount of equity available in the house. These lifeline mortgage loans make sense to people in retirement years as they can be used for many different costs and needs.

Two types of reverse mortgages exist. These are the Home Equity Conversion Mortgage (HECM) and the non-HECM. An HECM is guaranteed by the Federal Housing Administration.

The most typical kind of reverse mortgage loan is the Home Equity Conversion Mortgage. HECMs allow homeowners to borrow up to their principal limit based on the youngest borrower's age, the HECM mortgage limit (of $1,209,750 for 2025 and $1,149,825 for 2024), the current interest rate, and the value of the home in question. Borrowers can typically qualify for a larger principal amount if their property is worth more, they are older, and the interest rate is lower. With a variable rate HECM, homeowners can borrow more. Going with a fixed-rate HECM delivers a single lump sum payout.

Non-HECM reverse mortgages cover those loans that come from private lenders, nonprofit organizations, or local and state governments. These types of non-HECM loans can also be single-purpose loans. In either type of reverse mortgage, the interest will accrue each month. Borrowers can roll the interest charges back into the balance of the loan. Such interest rates are generally higher versus a traditional mortgage, though this depends on the lender.

There are a number of advantages for retirees in taking a reverse mortgage. One of the leading benefits is that they do not require the borrowers to pay back the loan so long as they stay living in the house. Homeowners would still be required to stay current with their property taxes, homeowners insurance, relevant homeowners association dues, and home upkeep. For owners who choose to move from the house, they must pay back the loan balance from the home sale proceeds.

The range of items that borrowers can use reverse mortgage loans for is significant. These loans can pay down high interest debt, increase retirement income, help with home improvements or repairs, or even cover incurred medical costs. Other homeowners utilize the reverse mortgage loan so that they can postpone taking Social Security benefits until they reach 70 years old in order to max out the benefits.

Yet another benefit to reverse mortgages is that some of them permit borrowers to purchase a new primary residence. Using this loan, a retiree can relocate to a new area or downsize to a condo or smaller house. Just be aware of the associated banking fees with the reverse mortgage loan.