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What Is A Reverse Mortgage?

Author: rationale | Posted: 05.08.2008 | Views: 55

Today, there’s lots of talk to those in their twenties and thirties about putting money aside for retirement. It’s good advice but the men and women retiring today weren’t given that same advice 35 years ago. So, in order to supplement their retirement, many retirees are looking to their most valuable asset to help them get by: their home.

In order to access the equity in their homes, some retirees opt to tap into the equity in their home through a traditional refinance loan. However, others are finding that reverse mortgages are a more appealing option. The primary reason: Homeowners who choose to go with a reverse mortgage do not make loan payments. Instead, the lender pays a lump sum or makes monthly payments to the retiree! It may sound fantastical but that’s the reality of a reverse mortgage.

Despite the fact that reverse mortgage loans do not feel like traditional loans initially, rest assured that, in the end, reverse mortgages are still loans. Reverse mortgages must be repaid and interest does accrue on the loan payments made to retirees. For instance, if a lender ends up paying the retiree $1000 per month for 10 years at 6% interest rate, the retiree will owe the lender the principal and the interest on all loan payments during those 10 years. Typically, the lender is “repaid” when one of two things occurs: (1) the homeowner sells the property or (2) the homeowner dies.

In the United States, reverse mortgages can only be made on a home that is a principal residence. Additionally, reverse mortgage loans are only available for those 62 years or older. Reverse mortgages can be a great option but, as with any mortgage loan, speak with a mortgage professional to determine whether a reverse mortgage loan is the best option for you.


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