You don't have to own your home free and clear in order to qualify for a reverse mortgage. In fact, most reverse mortgages are used primarily to payoff the existing home loan. Using a reverse mortgage to payoff the existing loan enables the homeowner to have some financial breathing room by eliminating the monthly mortgage payment.
If you take a look at the NRMLA (National Reverse Mortgage Lenders Association) consumer information website you can find answers to many common questions about reverse mortgages. Here's what they have to say about having an existing mortgage:
(Excerpt from www.reversemortgage.org)
You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.
For example, let's say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $25,000 left over to use as you wish.
If, however, you only qualify for $85,000, then you would need to come up with $15,000 from your own savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage. On the other hand, you won't have a monthly mortgage payment anymore.
If you find yourself in a deficit situation where you don't have enough money to pay off the existing mortgage, you may use funds from a grant or gift from a family member or friend to cover the gap, but you cannot incur a new debt obligation (i.e., loan)."
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