A reverse mortgage is a type of loan that allows homeowners who are at least 62 years old to convert a portion of their home equity into cash without having to sell their home, give up title, or take on a new monthly mortgage payment. In a reverse mortgage, the lender makes payments to the borrower, either in a lump sum, monthly payments, or a line of credit, based on the equity in the borrower’s home.
The loan is repaid when the borrower sells the home, permanently moves out, or passes away. At that time, the borrower, their heirs, or their estate will need to repay the loan, either by selling the home, paying it off with other assets, or refinancing the loan. If the loan balance exceeds the value of the home, the borrower or their heirs are not responsible for the difference, as the loan is insured by the Federal Housing Administration (FHA).
Reverse mortgages can be beneficial for retirees who need extra cash flow and want to stay in their homes, as they can provide a source of tax-free income without the need to make monthly mortgage payments. However, they also come with some risks and drawbacks, including high upfront costs, potential reductions in the borrower’s equity, and the need to maintain the home and pay property taxes and insurance. As with any financial decision, it’s important for borrowers to carefully consider the costs and benefits of a reverse mortgage and consult with a New Empire Mortgage Specialist before making a decision.