What Is a Reverse Mortgage?
Instead of making monthly payments to a lender, the lender makes payments to the borrower
A reverse mortgage is a loan available to homeowners, 62 years or older, that allows them to convert part of the equity in their homes into cash. The product was conceived to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction on how reverse mortgage proceeds can be used.
The borrower is not required to pay back the loan until the home is sold or otherwise vacated. As long as the borrower lives in the home he or she is not required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, HOI insurance and association dues (if applicable).
How a reverse mortgage works
- You borrow money based on the value of your home, your age, and current interest rates.
- The loan will first pay off your existing mortgage (if you have one). The rest of the money is yours to use however you want.
- You can make payments if you want, but it is not required.
- You can choose to receive your proceeds in the form of a lump sum, monthly payments, a line of credit, or any combination of the three.
- You are still responsible for paying property taxes, homeowners insurance, and home maintenance costs.