A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. In other words, the house is paying you back the cash that you put into it, plus any appreciation. These payments can come as a lump sum, a monthly payment or both. Of course, there are limitations on how much can be borrowed and the payouts (see below) but unlike any type of HELOC, you never make any payments on the loan amount. Ultimately, a reverse mortgage is a retirement tool that is becoming more common in the US as home prices rise and seniors are looking for alternatives to moving and/or supplementing other fixed incomes..
Homes eligible for a reverse mortgage:
Pro's of a Reverse Mortgage
Factors in determining the Loan Amount
A Reverse Mortgage offers the borrower a choice of a lump sum payout, a monthly payment or a combination of both. Since the payments are made from the equity, there is no monthly payment; however, the borrower is still responsible for the property taxes and hazard insurance payments. As long as you live in the home, you can never owe more than the value of your home, regardless of how much you borrow. In addition, if the balance is less than the value of your home at the time of repayment, you or your heirs keep the difference.
Con's of a Reverse Mortgage