What is a reverse mortgage?

A reverse mortgage is a type of loan where a lender makes payments to you in exchange for equity in your house — the exact opposite of how a traditional mortgage loan works.

Proceeds from a reverse mortgage can be received in several different forms:

• A lump sum of cash
• Monthly payments, for either a set time period or for as long as you own the home
• A line of credit
• Some combination of these three options

As the lender makes payments to the borrower, interest begins to accrue, as well as mortgage insurance that you’re responsible for. If you choose to take a lump sum, you’ll get a fixed interest rate — otherwise, your loan will be originated with a variable rate. Instead of making payments, as with other types of loans, a reverse mortgage is paid back when you sell your home, die, or vacate the property for more than 12 months.

The amount you can receive through a reverse mortgage depends on several factors, including your and your spouse’s age, current interest rates, and the value of your home (or your equity).

Finally, most reverse mortgages are “nonrecourse” loans, meaning that there is no other way for the lender to recoup the balance other than through the sale of the home. This means that the lender is not allowed to collect more than the sale price of the home to satisfy the debt — for example, if a borrower has an outstanding reverse mortgage balance of $400,000 upon their death and their home sells for $300,000, the lender cannot try to collect the additional $100,000 from the borrower’s estate.

Contact our home loan agents in San Ramon for mortgage questions.