Reverse Mortgage
A reverse mortgage is a type of loan available to homeowners who are typically aged 62 or older and have significant home equity. Unlike a traditional mortgage where the homeowner makes monthly payments to the lender, with a reverse mortgage, the lender makes payments to the homeowner. These payments can be made in several ways, including a lump sum, a line of credit, or regular payments.
The key feature of a reverse mortgage is that the homeowner doesn't have to repay the loan as long as they continue to live in the home as their primary residence. Repayment is typically required when the homeowner sells the home, moves out permanently, or passes away. At that point, the loan must be repaid, usually through the sale of the home. If the home is sold for more than the outstanding loan balance, the homeowner or their heirs receive the remaining equity. However, if the home sells for less than the loan balance, the lender absorbs the loss.
Financial Tool
It can be useful for retirees who need additional income and have substantial home equity but may not have enough income to qualify for a traditional loan. However, they also come with certain risks and considerations, including potential fees and interest charges, the impact on inheritance for heirs, and the obligation to maintain the home and pay property taxes and insurance. Therefore, it's essential for homeowners considering a reverse mortgage to carefully weigh the pros and cons and consult with a financial advisor or housing counselor to understand the implications for their individual situation.
