The interest rate could also be fixed or variable, depending on the loan’s structure, and there might or might not be a loan termination date. There are other costs involved, such as a mortgage insurance premium (both upfront and annually), the lender origination fee, and potential third-party fees. And the right loan might depend on how it’s structured. What's the downside of a reverse mortgage?Ī reverse mortgage is a good financial choice for some homeowners, but it’s not right for everyone. Like any other home loan, a reverse mortgage will require you to keep paying your property taxes, maintain a home insurance policy, and keep up with maintenance on your home to protect its value. There are federal regulations in place to make sure that your estate won’t end up owing more money than the value of the home, protecting your heirs in case the housing market drops, but beware of reverse mortgage scams that are not insured by the Federal Housing Authority. In other words, you’ll eventually have to pay back more cash than you received. Plus, because it’s a loan, the cash is not considered income by the Internal Revenue Service, so you won’t have to pay taxes on the funds you receive.Īlthough you don’t have to make payments, interest will still accrue over the life of the loan, meaning that you will owe more on the loan over time. Many retirees use a reverse mortgage to supplement their retirement income, for example, or to help pay for unexpected medical expenses. You can keep living in your home, and you can use the cash however you like. a line of credit you can borrow from, up to a certain limit.term payments, giving you regular payments for a limited time.an ongoing annuity, giving you monthly payments.
If you receive the loan, the financial institution will provide funds in exchange for your agreement to pay back any money you borrow in a lump sum. You can apply for a reverse mortgage based on your home equity if you are at least 62 years old. Save 10% Today How does a reverse mortgage work? If you can’t afford to pay off the loan when it comes due, you may be forced to either sell your home or take out a traditional mortgage to pay it off. However, some reverse mortgages are structured to come due on a certain date. If you live in the home for the rest of your life, your estate will pay off the loan after your death-but there are federal protections in place to help make sure your estate won’t owe more on that loan than the value of your home. Instead, you’ll need to pay the loan off in a lump sum if you sell your home, or if you move away from it (whether or not you sell it). What makes a reverse mortgage special is that you don’t have to make payments on the loan.
If the reverse mortgage is well structured, there isn’t really a catch, but the loan does need to be paid off eventually, plus any accrued interest, just like any other loan.
In that case, your home equity would be the entire market value of your home. It’s not uncommon for some applying for a reverse loan to have their mortgage already paid off. In other words, it’s the amount of money you’d get to keep after selling your home and paying off the mortgage. Home equity is the market value of your home minus anything you still owe on your mortgage.
What is a reverse mortgage?Ī reverse mortgage is a way for homeowners who are at least 62 years old to get cash from their home equity without having to sell their home and without having to make any mortgage payments.Ī reverse mortgage is still a loan-it’s not free money-but under the right conditions, it can be a good choice to help you tap into the home equity you’ve spent so many years building. As a result, homeowners who are at least 62 years old can now tap into their home equity, a huge financial asset, to get cash through a reverse mortgage. In fact, between 20, home prices jumped over 13%. In recent years, home values have risen dramatically.