The total amount of interest you owe accumulates significantly with time. Reverse mortgages are different from home equity loans or lines of credit which require repayment. Depending on the plan, reverse mortgages become due with interest either when the owner permanently moves, sells the home, dies or reaches the end of a preselected loan term. The debt is usually repaid by refinancing the loan into a forward mortgage or by using the proceeds from the sale of the home. Some reverse mortgage interest rates are fixed, others variable, and some plans charge origination fees, closing costs and servicing charges.
Insured plans are available for a fee.
To qualify for a reverse mortgage, all applicants must be age 62 or older, and own their home or have a very low mortgage balance. The home must be a single family residence that all applicants occupy as their primary residence. Counseling is required, and applicants receive a certificate showing they have been told of the advantages and disadvantages a reverse mortgage offers. According to information released online by the Federal Trade Commission, reverse mortgages use up some of the home's equity, leaving fewer assets for the owner and heirs. The legal obligation to pay back the loan is limited by the value of the home at the time the loan is repaid, an amount that can increase if the house's value increases.