A reverse equity mortgage allows senior citizens who are house rich and cash poor to obtain a loan based on the equity on their home. They retain title to their home as long as the continue to live there and receive nontaxable income which they can flexibly use for their own needs.
According to the terms of most mortgages currently available, the loan, interest and other costs such as origination fees do not have to be paid back until the owner vacates the property through a move or death. Almost all reverse mortgages now provide a guarantee of lifetime tenancy.
Most reverse mortgages are nonrecourse loans which means the lender can look only to the value of the home for repayment. Payments to a home owner from a reverse mortgage can be in the form of a lump sum of cash, regular monthly advances or a line of credit. New mortgage plans allow a combination of payment methods.
The amount of the loan is seldom for the full value of the property; most lenders place minimum and maximum limits on the size of mortgages they are willing to establish. Loan periods can vary. Some mortgages combine a reverse mortgage with an annuity, thereby guaranteeing individuals monthly income for their lifetime regardless of whether they continue to live in their homes or not. The monthly payments are considered annuity advances and thus partially taxable. For purposes of Medicaid eligibility these payments may be counted as income.