How Does a Reverse Mortgage Work?
A reverse mortgage is similar to a regular mortgage except you don't make monthly payments to the bank. Instead, the bank makes monthly payments to you. It is a way to borrow money against the equity in your home, a good option for an elderly person who is house-rich but cash-poor. You must be at least 62 years old and own your home outright or almost own it outright. You can keep receiving the monthly payments until the principal land interest of the loan reaches the amount of the home equity.
A unique aspect of a reverse mortgage is that the borrower doesn't have to repay until they sell their home, move out permanently, or die. If this happens, the mortgage is is usually paid off by selling the home or by refinancing into a traditional mortgage.
Let's say you are an elderly person who owns his own home outright. That great, but you don't have much income, maybe only a small monthly payment from Social Security. You may not have enough to live on. Your house is worth a lot, but you have no way of getting at that home equity since you want to live in your house. You could take out a reverse mortgage, get a monthly payment from the lender, and coninue living in the house as long as you want. If you move out permanently, sell the house or die, then you must repay the mortgage which is usually done by selling the house. Of course, you won't be living there anymore.
A unique aspect of a reverse mortgage is that the borrower doesn't have to repay until they sell their home, move out permanently, or die. If this happens, the mortgage is is usually paid off by selling the home or by refinancing into a traditional mortgage.
Let's say you are an elderly person who owns his own home outright. That great, but you don't have much income, maybe only a small monthly payment from Social Security. You may not have enough to live on. Your house is worth a lot, but you have no way of getting at that home equity since you want to live in your house. You could take out a reverse mortgage, get a monthly payment from the lender, and coninue living in the house as long as you want. If you move out permanently, sell the house or die, then you must repay the mortgage which is usually done by selling the house. Of course, you won't be living there anymore.