What is a Reverse Home Mortgage?

One of the newer options in home mortgages that some individuals are considering is a reverse home mortgage. This type of home mortgage allows individuals who are at least 62 years of age to access money by placing a mortgage on their home. In this regard, a reverse mortgage is similar to taking out a second mortgage, obtaining a home equity loan or home equity line of cash. There is one major difference between a reverse mortgage and these other types of mortgage loans, however. With a reverse mortgage, the homeowner will not be required to pay back the loan while they are still living in the home.

At first glance the re-payment options on a reverse home mortgage can seem to be somewhat of a conundrum. In reality, how a reverse mortgage works is that while the homeowner is not required to pay back the reverse mortgage loan while they are still living in the home, in the event that the homeowners die, move or sell the home; the loan will become due in full. In certain other circumstances, such as if the homeowner fails to keep up with home insurance and real estate taxes, then the reverse mortgage loan may also become due in full.

Homeowners may choose to receive the funds from their reverse mortgage loan in a number of manners; either in a lump sum or in other types of payments installments. A popular payment plan allows the homeowner to receive monthly payments. Because this type of arrangement can provide much needed cash, the reverse mortgage is very popular among senior citizens with limited income.

While a reverse mortgage loan can seem like a windfall, it is important to keep in mind that the money must be repaid, with interest, when all of the homeowners have died, when the home is sold or the homeowners move out. This means that heirs to an estate may end up having to deal with repercussions of a reverse mortgage after the principal homeowners have died or find it necessary to move to a care facility. Additionally, should the homeowners decide to sell their home at a later time, the amount of money they receive from the sale will be significantly, if not completely, reduced by having to repay the reverse mortgage loan. If the homeowner needed the money from the sale of the property to purchase another home, chances are they won’t be able to do so after paying back the reverse mortgage.