Table of Contents
- Who owns the house in a reverse mortgage?
- How does the reverse mortgage work?
- Mortgage types
- How does a reverse mortgage get paid back?
- What is the downside of getting a reverse mortgage?
Who owns the house in a reverse mortgage?
In a reverse mortgage, the homeowner remains the owner of the home. The homeowner retains title to the property, even after a reverse mortgage has been taken out. The lender does not own the home, and cannot evict the borrower from the property. The homeowner is still responsible for property taxes, insurance, and other fees associated with the property.
How does the reverse mortgage work?
A reverse mortgage works by allowing a homeowner to take out a loan against the equity in their home. The loan does not have to be repaid until the homeowner dies, moves out of the home, or sells the home. The loan amount is determined by the amount of equity in the home, the homeowner’s age, and the current interest rate. The loan is repaid with interest when the home is sold or the homeowner moves out or passes away.
Mortgage types
There are two types of reverse mortgages: the Home Equity Conversion Mortgage (HECM) and the proprietary reverse mortgage. The HECM is the most common type of reverse mortgage and is backed by the federal government. The proprietary reverse mortgage is a private loan, and is not backed by the government. Both types of reverse mortgages allow the homeowner to receive cash from the equity in their home.
How does a reverse mortgage get paid back?
When the homeowner dies, moves out of the home, or sells the home, the loan must be repaid. The loan is repaid with interest from the proceeds of the home sale. If the home is sold for less than the amount owed, the lender will not seek repayment from the homeowner or their heirs. The lender will only be repaid the amount of the home sale, and the remaining balance will be forgiven.
What is the downside of getting a reverse mortgage?
The downside of getting a reverse mortgage is that the homeowner will no longer have any equity in the home. Once the loan is taken out, the equity in the home will be reduced by the amount of the loan. Additionally, the homeowner will accrue interest on the loan and this will increase the amount of the loan over time. It is important to consider the long term effects of a reverse mortgage before taking one out.