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A reverse mortgage (known as equity withdrawal in the United Kingdom) is a type of loan used by older consumers as a way of converting their home equity into a cash payment while retaining ownership of their property. To qualify for a reverse mortgage in the United States, you must be at least 62 and have paid off all or most of your home mortgage.
Reverse mortgages allow the home owner to continue living in the home without being required to repay the loan. In exchange, the lender receives a substantial fraction of the home's equity. In the United States, the proceeds of the loan are tax-free, there are no minimum income requirements, and for most reverse mortgages, the money can be used for any purpose. However, reverse mortgages also tend to be costlier than other types of loans, and are sometimes abused by shady lenders.
Income is generally not considered by lenders when granting reverse mortgages, and no medical tests or medical histories are required. The amount you can borrow depends on your age, the equity in your home, the value of your home, and the interest rate. Reverse mortgages administered by the government may have other requirements as well.
In the United States, you can be paid in a lump sum, in monthly advances, through a line of credit, or a combination of all three. The loan advances, which are not taxable, generally do not affect Social Security or Medicare benefits. However, you should keep in mind that reverse mortgages tend to be more costly than traditional loans. They also use up all or some of the equity in a home. For these reasons, it's very important to compare reverse mortgage lenders and be aware of their requirements and risks before applying for this type of loan.
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