Reverse mortgages

Reverse mortgages are a relatively new invention. These special loans were designed to help elderly (62-years and up) homeowners who need money but don’t want to give up their house.

When you buy a home, you have a normal mortgage. As you make monthly payments, you build equity. At the same time, you decrease your debt, or the money you borrowed to pay for the house in the first place.

A reverse mortgage, by contrast, reduces equity and builds debt. Instead of making monthly repayments, you receive cash. This cash can be handed over to you all at once, or in small installments over time.

Reverse mortgages are designed for people who already own their homes; customers borrow money against their home equity. In this way, reverse mortgages are very similar to home equity loans.

Despite this fundamental similarity, reverse mortgages differ from home equity loans in several important ways. First and foremost, home equity loans require that the borrower has income or savings that make repayment possible. Since reverse mortgages do not require repayment as long as the borrower is living in the house, income is not a consideration.

In other words, even if you borrow against the full value of your home, you will never be forced to sell it until you no longer want to live there.

While reverse mortgages have helped many seniors pay for the things they need, there are several drawbacks. First of all, they can be expensive, especially if the reverse mortgage is not long term. Furthermore, a decrease in your equity means that your house might have to be sold after you die or move to pay off the mortgage.