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Considering a reverse mortgage

Are you or someone you know considering a reverse mortgage?

Reverse mortgages might be attractive options for seniors with limited incomes and financial uncertainty.  However, these types of mortgages are complicated financial products that often have significant costs and risks that need to be considered.

The Minnesota Department of Commerce urges homeowners to carefully review their options and learn about the costs and risks involved with a reverse mortgage before making a decision.

Understanding the basics of a reverse mortgage

A reverse mortgage is a special type of loan that provides the opportunity for homeowners 62 years or older to borrow against the equity in their homes. 

A reverse mortgage allows homeowners to access that equity in the form of cash – either as a lump sum payment, a monthly payout or a line of credit. It is called a “reverse” mortgage because you receive money from the lender instead of having to make payments. 

However, interest is charged on the money you receive, so the balance on your loan will increase over time.  Because equity is the value of your home minus the money you received and the accumulated interest, you will have less equity in your home as your loan balance increases.

With a reverse mortgage, the loan does not have to be repaid until the last borrower, co-borrower or eligible spouse dies, sells the home or moves out of the home.  

At that time, the full balance on the loan will be due or the home will go into default, which may lead to foreclosure. In most instances, the home must be sold in order to pay off the loan. 

With a reverse mortgage, you still own your home, not the lender. This means that you still need to pay property taxes, maintain hazard insurance and keep your home in good repair. If you fail to do so, the lender could determine that your loan has gone into default and your home could be subject to foreclosure. 

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