December 22, 2022
A reverse mortgage is a type of loan that allows homeowners ages 62 and older, typically who’ve paid off their mortgage, to borrow part of their home’s equity as tax-free income. Unlike a regular mortgage in which the homeowner makes payments to the lender, with a reverse mortgage, the lender pays the homeowner.
Homeowners with this kind of mortgage don’t have a monthly payment and don’t have to sell their home, but the loan must be repaid when the borrower dies, permanently moves out or sells the home.
The amount a homeowner can borrow is called the principal limit. The more the property is worth, the lower the interest rate.
Supplementing retirement income, covering the cost of needed home repairs or paying out-of-pocked medical expenses are common acceptable uses of reverse mortgage proceeds.
There will still be closing cost associated with a reverse mortgage, but the costs can be rolled into the loan.
Borrower doesn’t need to make monthly payment toward their loan balance
Proceeds can be used for living and healthcare expenses, debt repayment and other bills
Funds can help borrowers enjoy their retirement
Non-borrowing spouses not listed on the mortgage can remain in the home after the borrower dies
Borrower must maintain the house and pay property taxes and homeowners insurance
Forces you to borrower against the equity in your home, which could be a key source of retirement funds
Fees and other closing costs can be high and will lower the amount of cash available
Borrowers facing foreclosure can use a reverse mortgage to pay off the existing mortgage, potentially stopping the foreclosure