For many Americans, a reverse mortgage is an ideal way to convert their home’s equity into the cash they need to enjoy a financially secure retirement without selling their home.

The process allows seniors who may be house-rich but cash-poor to reverse the direction of their mortgage and draw from the equity that has built up. The money can be withdrawn in one lump sum, in fixed monthly payments, or as a line of credit. It can be used for virtually anything from daily living expense to home repairs or travel.

Seniors who take a reverse mortgage continue to own their home and are responsible for it. The must maintain the property and continue to pay the taxes and insurance or the debt may be called. The reverse mortgage is due and payable when the last surviving borrower dies (in the case of a couple), when the house is sold, or when the homeowners move out of the home permanently.

In most cases, a reverse mortgage must be the primary debt against your home. That means you must pay off existing debt before you apply for a reverse mortgage or use the money from the reverse mortgage to pay off existing debt. Most lenders will allow you to incorporate your existing debt into the mortgage. They will also allow you to incorporate the bank fees and monthly servicing charges into the loan amount.
(See below for more information.)

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How much you qualify to borrow depends on the plan you choose, interest rates and closing costs. Your age and your home’s worth also come into play. In most cases, the older you are and the more your house is worth the more you will get.

To qualify for a reverse mortgage a homeowner must:

Be 62 years old or older.

Be mortgage free or have a mortgage with a very low balance.

Occupy the property, maintain the property, and continue to pay the taxes and insurance.

Ensure the home is structurally sound. Lenders will send an inspector to identify any major defects (such as a bad foundation, leaky roof, or termite damage) and a homeowner will be given up to one year to make the repairs.

The money from a reverse mortgage is tax-free and does not affect regular Social Security or Medicare benefits. It may affect a senior’s eligibility for certain kinds of government assistance, such as Medicaid or state assistance programs, however so it is best to investigate before making your final decision.