What are reverse mortgages?

Reverse mortgages are loans that are available to elderly homeowners. The loan amount is based on their age and the amount of equity they have in their home, and doesn't have to be repaid until the homeowner passes away, moves out, or sells the house.

A reverse mortgage can be dispersed in several ways:

  1. A line of credit can be extended, from which the homeowner can draw money as needed.
  2. A fixed, monthly amount over a short period of time (5 years, for example).
  3. A fixed, monthly amount for the rest their lives (or until they sell the home).
  4. One lump sum.

The most popular type of reverse mortgage is FHA.s Home Equity Conversion Mortgage. This loan has the lowest interest rates, but also has the lowest maximum amounts you can borrow against the home's equity. Maximum amounts vary by state and county, ranging from ,160 to ,170.

Fannie Mae also offers a reverse mortgage program called Home Keeper. The interest rates with Fannie Mae are a little higher, and adjust monthly. The benefit of the Fannie Mae program is that the maximum mortgage limit is higher. The limit for 2006 is ,000 and does not vary by county or state.

To be eligible for a reverse mortgage, the borrower must be 62 or older, and the home must be the borrower's permanent residence. Because there's no repayment obligation, borrowers need not have excellent, or even good, credit.

More information on the FHA and Fannie Mae programs can be found at their websites: