Reverse Mortgage

A reverse mortgage allows a senior citizen to receive funds that are based on the equity value of their home. In other words, a reverse mortgage allows a person to borrow against their home equity. In the United States, a person must be at least 62 years of age to initiate a reverse mortgage, and there are minimum requirements for the level home equity. The funds are provided by a lending institution and can be in the form of periodic income payments or a lump sum. In 2009, Congress increased the maximum home value that can be borrowed against to $625,000 from $417,000. Almost all reverse mortgages are backed or insured by the Federal Housing Administration (FHA). A primary residence is a meaningful portion of the net worth of many senior citizens. As a result, a reverse mortgage can play a very important role in financial planning because it allows seniors to derive income from a significant but largely illiquid asset.