Is a Reverse Mortgage a Good Option for Homeowners?

Invested mortgage loans allow homeowners to convert their home's equity into cash income without having to pay a monthly mortgage.

Inverted mortgages

can be a big financial decision for some seniors, but a bad financial decision for others. A reverse mortgage loan, like a traditional mortgage, allows homeowners to borrow money using their home as security for the loan. As with a traditional mortgage, when you apply for a reverse mortgage loan, your home title stays in your name.

However, unlike a traditional mortgage, with a reverse mortgage loan, borrowers don't make monthly mortgage payments. The loan is repaid when the borrower no longer lives in the home. Interest and fees are added to the loan balance each month and the balance increases. With a reverse mortgage loan, homeowners must pay property taxes and property insurance, use the property as their primary residence, and keep their home in good condition.

With a reverse mortgage, an eligible homeowner borrows money against the home's equity. Interest accrues monthly and you don't need to repay the loan until you move or die. Instead, accrued interest is added to the loan balance, so the figure is calculated every month. Many older homeowners use reverse mortgages to supplement their income during retirement.

Reverse mortgages can also help reduce monthly housing expenses (no more monthly payments), increase cash flow, or pay for home repairs or improvements for older people who are aging on site. If you get a reverse mortgage of any kind, you get a loan in which you apply for a loan against the equity of your home. You should plan to stay in your home in the near future if you are considering a reverse mortgage. Unlike a regular mortgage where the owner makes payments to the lender, with a reverse mortgage, the lender pays the landlord.

Reverse mortgages have earned a less-than-perfect reputation thanks to some scams aimed at unsuspecting older people. Taking out a reverse mortgage also means spending a significant portion of your home's net worth on fees and interest on the loan. Reverse mortgages can be complicated, and if something changes with your state, your reverse mortgage options can change too. Reverse mortgages can also have variable interest rates, so their total costs could increase in the future.

However, if you want fixed-rate financing, the amount of equity you can access is less than what you could get with an adjustable rate reverse mortgage. As with any mortgage, there are conditions to keep your reverse mortgage current and if you don't meet them, you could lose your home. Not only are there a number of reverse mortgage scams but lenders can also impose high closing fees and costs and borrowers must pay for mortgage insurance. And ask lots of questions to make sure that a reverse mortgage works for you and that you're looking for the right one for you.

Reverse mortgages generally need to be repaid when you move out of the house, sell it or die. With a reversed home loan, the amount the homeowner owes the lender increases not decreases over time. Unlike a reverse mortgage, you'll have to make monthly payments and lenders will evaluate your income and credit when reviewing your application. A home equity conversion mortgage is a federally backed loan that is regulated by the Federal Housing Administration (FHA) and the U.

Harry Lammel
Harry Lammel

Unapologetic lover of life. Award-winning family man. Typical husband and father. Music junkie. Food buff.