A reverse mortgage is a loan product that allows older homeowners to leverage their home equity to meet their financial needs. Unlike other loan products, repayment is not achieved through a monthly mortgage payment over time. Instead, it is repaid all at once when the loan matures, usually when the homeowner sells or transfers the title to their home or abandons it permanently. In some cases, the loan may need to be repaid sooner if the home is no longer the primary residence, if taxes or insurance are not paid, or if the house is not kept in good condition.
The most common way to repay a reverse mortgage is by selling the house. When considering a reverse mortgage, it is important to understand both the benefits and drawbacks. One of the main benefits of a reverse mortgage is that borrowers are not required to make monthly payments to repay the loan. Instead, they receive payments, often month-to-month, that cause the loan balance to increase over time.
The loan matures when the owner dies, moves or sells the house. Another benefit of a reverse mortgage is that borrowers may be eligible for a home interest tax deduction when the loan is paid off. This can be beneficial for those who use a reverse mortgage to purchase or substantially improve their home. However, there are also drawbacks to consider.
One of the main drawbacks of a reverse mortgage is that it can delay retirement planning. Additionally, if interest rates are lower than when you first got your loan or the value of your home has increased, you could refinance it with a new reverse mortgage. Finally, if the value of your home decreases and your reverse mortgage balance becomes higher than the market value of the home, your children will still have to pay the full balance if they want to keep the house. However, AARP is challenging this policy in a lawsuit it filed against the U.
S. Department of Housing and Urban Development on behalf of three plaintiffs. When you buy a reverse mortgage, you'll have to pay the full balance of the loan plus any accrued interest and fees. As part of your plan, make sure you have a will before applying for a reverse mortgage to ensure that all your assets (including your house) are transferred to the right person at the time of your death.
Be sure to research and consult with an inverted mortgage specialist to ensure that this type of loan is right for you.