Table of Contents
- What is a Reverse Mortgage?
- How Does a Reverse Mortgage Work?
- Is a Reverse Mortgage a Good Idea?
- How Do You Pay Back a Reverse Mortgage?
- How Much Money Do You Get From a Reverse Mortgage?
- Types of Reverse Mortgages
What is a Reverse Mortgage?
A reverse mortgage is a type of loan that enables homeowners aged 62 and over to borrow against the equity in their home. The loan proceeds are tax-free and can be used for any purpose, including supplementing income, paying off debt, or financing home improvements. The loan does not need to be paid back until the borrower moves out of the home or passes away.
How Does a Reverse Mortgage Work?
To qualify for a reverse mortgage, you must be at least 62 years old and own your home outright or have a low loan balance that can be paid off at closing with proceeds from the reverse mortgage. The amount you can borrow depends on your age, the appraised value of your home, and current interest rates.
When you take out a reverse mortgage, you are not required to make monthly payments. Instead, the loan is paid back when you move out of the home or pass away. The loan is repaid by selling the home, with the proceeds going to the lender. If the sale of the home does not cover the loan balance, the lender is not responsible for the difference.
Is a Reverse Mortgage a Good Idea?
Reverse mortgages are generally a good idea for homeowners who need extra money to supplement their income or pay off debt. The loan proceeds are tax-free and can be used for any purpose. However, there are some downsides to consider.
First, a reverse mortgage will reduce the equity in your home, which may make it more difficult to leave the home to your heirs. Additionally, the loan balance will increase over time due to interest and fees, which may exceed the value of the home. Finally, if you move out of the home or pass away, the loan must be paid back, either through the sale of the home or from other assets.
How Do You Pay Back a Reverse Mortgage?
A reverse mortgage is paid back when the borrower moves out of the home or passes away. The loan is repaid by selling the home, with the proceeds going to the lender. If the sale of the home does not cover the loan balance, the lender is not responsible for the difference.
How Much Money Do You Get From a Reverse Mortgage?
The amount you can borrow with a reverse mortgage depends on your age, the appraised value of your home, and current interest rates. Generally speaking, the older you are and the higher the value of your home, the more money you can borrow.
Types of Reverse Mortgages
There are three types of reverse mortgages: single-purpose reverse mortgages, federally-insured Home Equity Conversion Mortgages (HECMs), and proprietary reverse mortgages. Single-purpose reverse mortgages are offered by some state and local