A reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), allows homeowners aged 62 or older to convert part of their home equity into cash. This financial product can provide additional income during retirement without requiring the homeowner to sell their home or make monthly mortgage payments. Instead, the loan balance increases over time and is typically repaid when the homeowner sells the home, moves out permanently, or passes away.
In a reverse mortgage, you can borrow against the equity in your home. The loan is secured by your house, and you are not required to make any payments until the loan term ends, which usually occurs when you move out, sell the house, or pass away. During the term of the loan, interest accrues on the borrowed amount and compounds over time.
At the end of the loan term, the debt must be repaid. If the accumulated debt exceeds the home’s equity, the lender can only claim the proceeds from the sale of the house to cover the loan. This can potentially leave no assets from the home’s equity for your heirs or personal needs post-mortem.
Avoid considering a reverse mortgage. While they may appear beneficial initially, they come with substantial drawbacks and constraints. One significant issue is the potential for predatory lending practices, which can cause considerable stress for you as the borrower.
When/who is a reverse mortgage candidate?
Let’s break down how a RM actually works. Pro means a RM is helpful/useful.
For more detailed information, refer to the consumer financial protection bureau (CFPB) guidelines on reverse mortgage loans.