Kiplinger’s Personal Finance: What retirees need to know about reverse mortgages | Business News

Pulling the equity out of your house through a reverse mortgage seems to fly in the face of the American dream of proudly living in a fully paid-up home.

That, combined with the sketchy reputation reverse mortgages have sometimes had, is why most people are wary of pursuing these loans.

But over the past decade, the U.S. Department of Housing and Urban Development strengthened regulations to protect consumers.

“Like any financial product, reverse mortgages can be a great tool,” says Jennifer Fraser, with GreenPath Financial Wellness, a nonprofit financial counseling service. “They work well for some people and are not a great fit for others.”

A reverse mortgage is a loan, with the interest on it compounding. But unlike a traditional mortgage, you or your estate repays the principal and interest at the end of the loan.

Home Equity Conversion Mortgages (HECMs) are the only federally insured reverse mortgages and have strict requirements.

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You must be age 62 or older and, as of 2022, the loan can’t be based on a home value greater than $970,800, even if the house is worth more.

Typically, you must have at least 50% equity in the home, which must be your principal…

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