What is a reverse mortgage?
A reverse mortgage is a type of loan that allows homeowners who are at least 62 years old and have a lot of equity in their homes to access some of that equity without selling their homes. Unlike a regular mortgage, where the homeowner makes monthly payments to the lender, a reverse mortgage pays the homeowner either in a lump sum, monthly payments, or a line of credit. The loan does not have to be repaid until the homeowner dies, moves out, or sells the home.
Reverse mortgages can be useful for seniors who need extra income to cover their living expenses, especially if they have paid off their original mortgage or have a low balance. However, reverse mortgages also have some drawbacks and risks, such as:
- High fees and interest rates that reduce the amount of equity available
- Lowering the value of the home and the inheritance for the heirs
- Losing the home if the homeowner fails to pay property taxes, insurance, or maintenance costs
- Limiting the options to move or downsize in the future
Therefore, before getting a reverse mortgage, homeowners should consider other alternatives, such as home equity loans or lines of credit, selling their home and renting or buying a smaller one, or applying for public benefits or assistance programs. They should also consult with a HUD-approved counselor and compare different lenders and products to find the best deal for their situation.