How a reverse mortgage works

A reverse mortgage gives you access to the equity you have built up in your home. Simply enough, you receive the equity in your home - either in a lump sum payment or in monthly installments.  You pay back the loan later, but you will never owe more than the home is worth. You do not have to pay back the loan until you leave your home or no longer occupy it.

Here are some tips and suggestions for comparing reverse mortgages and picking the one that's right for you.

Know your options

Consider what is going to work best for you and your situation: an FHA-insured, lender- insured and uninsured reverse mortgage. You can choose a lump-sum disbursement, scheduled disbursements, or a line of credit which allows you to withdraw money as you need it. Compare each option because the amount of money you get from each one will be different.

Understand and compare closing costs

Know what the closing costs are, and what fees are tacked on during the closing process.

Consider interest rates

Even though you are not making a mortgage payment with a reverse mortgage, you still want to make sure you are getting the lowest interest rate because that interest comes out of the equity in your home. The higher the interest rate the less equity you will receive, which is like throwing away part of the equity you worked hard to gain.

Know what you are responsible for

With a reverse mortgage, you are still responsible for property taxes, insurance, utilities, fuel, maintenance and other expenses. Remember that interest on a reverse mortgage is not deductible on income tax returns until the loan is paid off in part or whole.

Look out for scams

Be careful of sales pitches and scams when comparing reverse mortgages. Many sellers may try and offer services along with the loan. There is no need to buy any other services or products when getting a reverse mortgage.
Know your rights
You have at least three business days after closing to cancel the deal.

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