A loan against your home that requires no repayment
for as long as you live there.

How's it different?

• To qualify for most loans, the lender checks your income
  to see how much you can afford to pay back each month.
  But with a reverse mortgage, you don't have to make
  monthly repayments. So your income generally has
  nothing to do with getting the loan or the amount of the loan.

• With most home loans, if you fail to make your monthly
  repayments, you could lose your home. But with a reverse
  mortgage, you don't have any monthly repayments to make.
  So you can't lose your home by failing to make them.

Who can get one?

How much cash can you get?

The amount of cash you can get from a reverse mortgage
depends on the program you select and - within each
program - on your age, home, and interest rates.

But remember, the total amount of cash you actually end up
getting from a reverse mortgage will depend on how it's paid
to you plus other factors.

How's it paid to you?

That's up to you. You could take it

Use the calculator at www.aarp.org/revmort/ to estimate
how much cash you could get from a reverse mortgage.

How much total cash?

• If you take a creditline account, the total amount of cash
  you actually get will depend on two things: how much of
  your available creditline you use, and whether the creditline
  is "flat" or "growing."

• With a flat creditline, the amount of remaining available
  credit at any time only changes if you take a cash
  advance, at which point it decreases by the amount
  of the advance. For example, if you have a flat $50,000
  creditline and take out $10,000, you would have
  $40,000 left whenever you decided to take more.
• But with a growing creditline, your remaining available
  credit grows larger by a given rate. For example, if you
  took $10,000 from a $50,000 creditline that grows by
  8% each year, and then came back for more three
  years later, there would then be over $50,000 left to
  use - because the remaining $40,000 growing at 8%
  per year would become $50,388 after three years.
• So a growing creditline can give you a lot more cash
  over time than a flat one. That’s why you need to look
  at more than the size of a credit-line when a reverse
  mortgage starts. You also should consider how much
  available credit would be left in the future. This will also
  depend, of course, on how much you take out and
  when you take it.
• The creditline in the Home Equity Conversion Mortgage
  (HECM) program grows larger each month by the same
  rate as the one being charged on the loan balance. It
  keeps growing for as long as there is any credit left,
  that is, until you withdraw all your remaining credit.
• For a sample comparison of creditline plans, click here.
• If you take monthly loan advances, the total amount of cash
  you actually get will depend on whether you select a plan
  that sends them to you for a specific number of years, or
  for as long as you live in your home. It will also depend how
  long you actually live in your home.

• If you use a reverse mortgage to buy an annuity, the total
  amount of cash you actually get will depend on how long
  you live - no matter where you live.

What happens to your debt?

It grows larger and larger as you keep getting cash
advances, make no repayment, and interest is added
to the amount you owe (your "loan balance").

That's why reverse mortgage are called "rising debt,
falling equity" loans. As the amount you owe (your debt)
grows larger, your equity (that is, your home's value
minus any debt against it) generally gets smaller.

• Yes. In a "forward" mortgage (the kind you normally use
  to buy a home), your regular monthly repayments make
  your debt go down over time until you have it all paid off.
  Meanwhile, your equity is rising as you owe less and less,
  and as your property value grows (appreciates). So
  forward mortgages are "falling debt, rising equity" loans -
  just the opposite of reverse mortgages.

• Here's another way to think of it. In a forward mortgage,
  you use debt to turn your income into equity. In a reverse
  mortgage, you use debt to turn your equity into income.
  You are reversing the deal you used to buy your home.
  Then, you had income and wanted equity. Now, you have
  equity and want income. In both cases you use debt to
  turn what you have into what you want.

When do you pay it back?

• When the last surviving borrower dies, sells the home, or
  permanently moves away. "Permanently" generally means
  you have not lived in your home for 12 months in a row.

• You might also have to pay it back if you fail to pay your
  property taxes, fail to keep up your homeowner's insurance,
  or let your home go to waste. But if you do, the lender may
  be able to make extra cash advances to cover these
  expenses.

What do you owe?

The total amount you will owe at the end of the loan (your
"loan balance") equals

• all the cash advances you've received (including
  any that were used to pay loan fees or costs)
• plus all the interest on them
• up to the loan's "nonrecourse" limit
  (see answer to next question).

Interest rates can change based on changes in
published indexes. But the more adjustable they are,
the lower they start – so they give you larger cash
advances. And they will be lower than less adjustable
rates all during the time that index rate changes don’t
exceed the caps on the less adjustable rates.

What's the most you can owe?

You can never owe more than the value of the home
at the time the loan is repaid. Reverse mortgages are
generally "nonrecourse" loans, which means that in
seeking repayment the lender does not have recourse
to anything other than your home. Not your income, your
other assets, or your heirs.

So even if you receive monthly loan advances until you
are aged 115, your home declines in value between now
and then, and the total of monthly advances becomes
greater than your home's value - you can still never owe
more than the value of your home. If you or your heirs sell
your home in order to pay off the loan, the debt is generally
limited by the net proceeds from the sale of your home.

How do you pay it?

• If you sell and move, you would most likely pay back the loan
  from the money you get from selling your home. But you could
  pay it back from other funds if you had them.

• If the loan ends due to the death of the last surviving borrower,
  the loan must be repaid before the home's title can be
  transferred to the borrower's heirs. The heirs could repay the
  loan by selling the home, using other funds from the
  borrower's estate or their own funds, or by taking out a
  new forward mortgage against the home.

What's left?

Not all reverse mortgage borrowers end up living in their
homes for the rest of their lives. Some who expect to
remain living there change their minds. Others face later
health problems that require a move.

So it makes sense to plan for the possibility that you may
sell and move some day. How much equity would be left
if you did?

• If, at the end of the loan, your loan balance is less than
  the value of your home (or your net sale proceeds if
  you sell), then you or your heirs get to keep the
  difference. The lender does not "get" the house. The
  lender gets paid the amount you owe, and you or your
  heirs keep the rest.
• IMPORTANT: If you take the loan as a creditline account,
  be sure to withdraw all remaining available credit before
  the loan ends. You will have the money sooner that way,
  and it could be more than otherwise might be left. For
  example, a growing creditline could become greater
  than the leftover equity in some cases.
• If you have purchased an annuity and then sell your
  home, you could continue receiving monthly annuity
  advances for the rest of your life. If the loan ends due
  to the death of the last surviving borrower, and if the
  annuity purchased by the borrower includes a death
  benefit or "period certain" payments, then the annuity's
  beneficiaries would receive additional cash.

What's the out-of-pocket cost?

Most of the other costs can be "financed" with the loan.
This means that you can use reverse mortgage funds
advanced to you at closing to pay the costs due at that
time, and later advances to pay any ongoing costs. The
advances are added to your loan balance, and become
part of what you owe - and pay interest on.

What are the other costs?

• Most are generally of the same type found on "forward"
  mortgages: interest charges, origination fees, and
  whatever third-party closing costs (title search & insurance,
  surveys, inspections, recording fees, mortgage taxes) are
  required in your area. Reverse mortgages also typically
  include some type of "risk-pooling" or "reverse mortgage
  insurance" premium and a monthly servicing fee.

• Although total loan costs between one program and another
  can vary enormously, many of the individual cost items within
  each program do not vary from one lender to another. Within
  the HECM program, for example, the costs that may be
  different from one lender to another are generally the
  origination fee and the servicing fee. So if you've decided
  on HECM you want to get the best deal, these are the specific
  fees to compare.

• The largest total cost differences you will find are the ones
  between different programs, for example, between the
  HECM and Fannie Mae's "Home Keeper" program. But
  it is virtually impossible to evaluate or compare the true,
  total cost of reverse mortgages unless you consider their
  Total Annual Loan Cost (TALC) rates.

What's the total cost?

Federal Truth-in-Lending law requires reverse mortgage
lenders to disclose the projected annual average cost of
these loans in a way that includes ALL of the costs and
benefits, and also takes into account the nonrecourse limits.

This Total Annual Loan Cost (TALC) disclosure shows
you what the single all-inclusive interest rate would be if
the lender could only charge interest and not charge any
other fees. Specifically, it tells you the annual average rate
that would produce the total amount owed at various future
points if only that rate were charged on all the cash
advances you get that are not used to pay loan costs. In
other words, it shows you what you are paying in total for
the money you get to spend.

How does the total cost vary?

On any loan with a given pattern of loan advances, TALC
rates depend on two major factors: time and appreciation.

• TALC rates are generally greatest in the early years
  of the loan and decrease over time, for two reasons
  1) the initial fees and costs become a smaller part of
  the total amount owed, and 2) the likelihood increases
  that the rising loan balance will catch up to - and then
  be limited by - the nonrecourse limit.
• TALC rates also depend on changes in a home's value
  over time. The less appreciation, the greater the
  likelihood will be that a rising loan balance will catch up
  to - and then be limited - by the home's value. On the
  other hand, when a home appreciates at a robust rate,
  the loan balance may never catch up to (and be limited
  by) it.

What's that mean?

If you end up living in your home well past your life
expectancy or your home appreciates at a low rate,
you might get a true bargain. But if you die, sell, or
move within just a few years or your home appreciates
a lot, the true cost could be very high.

There's no way of avoiding this fundamental risk. You
just have to understand it in general, assess the potential
range of TALC rates on a specific loan, and decide if
it's worth the benefits you expect you'll get from the loan.

Just remember, TALC rates are not really comparable to
the Annual Percentage Rates (APRs) quoted on "forward"
mortgages because

• unlike APRs, TALC rates include all the costs
• unlike APRs, TALC rates do not assume you take
  all of the loan on the first day (if they did, TALC
  rates would be much closer to APRs)

So you may pay more for a reverse mortgage. But the benefits
are not available on any other type of debt. And - if you live long,
or if your property value doesn't grow much - you can end up
with a lower than expected cost.

For more on TALC rates, go to TALC Disclosures.