Reverse mortgages are loans for qualified homeowners 62 years or older. It serves as a line of credit that is normally paid to the homeowner in a monthly sum. The homeowner would not make any loan payments until the borrower no longer resides on the property.
This type of mortgage is the opposite of the traditional “forward” mortgage. A forward mortgage is where the borrower makes monthly payments to make the debt go down. In the case of a reverse mortgage, the debt is increasing because the lender is sending you money. Appropriate, reverse mortgages are called “rising debt, falling equity, loans.
With a reverse mortgage, the home serves as the loan’s collateral if the homeowner has enough equity in the home. In other words, qualified homeowners have either completely paid off their home loan or have a very small balance remaining.
Homeowners will not be required to pay anything upfront. You still need to pay all taxes, insurance, and association dues associated with your property. However, the lender will make payments to you, either monthly or in a lump sum. The more money you receive from the lender, the greater your debt is. As a result, the less equity you have in your home. The loan balance is due when the borrower dies or sells their home.
During a reverse mortgage, you still keep the title to the home. However, when the loan balance is due, the homeowner or heirs will pay back the debt. In most cases, the sale of the home will compensate for the debt. If the surviving heirs want to keep the property, they will need to find an alternative way to repay the original homeowner’s loan.
A reverse mortgage is a good option to supplement other retirement income. Seniors can tap into their home equity without having to sell or move from their home. This type of loan will increase your monthly cash flow and can be a useful retirement tool.
Most of all, it is best for qualified homeowners that do not plan to move or downsize. The contingency is that they must be able to afford to maintain their home as well as pay all taxes, insurance, and association fees.
A reverse mortgage, however, is not suitable for everyone. Do not pursue it if you desire your heirs to inherit your home. If the homeowner passes away or decides to move, the heirs will need to pay the outstanding debt or be forced to sell the home to settle the debt.
Similarly, if you are currently living with someone, in the event of your death, the person living with you will suddenly be without a home. The lender will come to collect the outstanding debt. Remember, your home was the collateral in the reverse mortgage.
A reverse mortgage is a big decision. It can help increase your monthly cash flow. However, be sure a reverse mortgage aligns with your wishes regarding what happens to your home in the future.