What is a Reverse Mortgage?
A reverse mortgage is a special type of home loan only available to property owners who are 62 years old or older.
Similar to a conventional home mortgage, the home is the security for the loan, and the homeowner keeps title to the property.
Unlike a conventional home mortgage, the property owners do not make the monthly payments. Instead all interest and fees are added to the balance of the loan. When the property is sold the financial lender is paid all of the back interest.
This is similar to what would be considered an interest only balloon note, but instead of interest being paid during the life of the loan, it’s all paid with one big lump sum at the end of the loan.
During the life of the loan the homeowner is responsible for paying the taxes and insurance, and of course, keeps the property up.
The homeowners are also required to keep the property as their primary residence.
The obvious advantage of this type of mortgage is the homeowner gets a lump sum of money up front that does not need to be paid regularly during the life of the loan.
The down side of this type of loan is that the interest and fees are still being added to the balance of the loan, and that may be shrinking the equity in the property.
If you are 62 years or older, and you are thinking about getting a reverse mortgage, please be sure to talk to several financial professionals about the advantages and disadvantages about such a mortgage.