We all know how regular mortgages work: you borrow money from a bank to purchase or refinance your home, and you pay the bank back, with interest, in installments over a certain period of time.
What about reverse mortgages, though? They’re not the best choice for everyone (you have to be above a certain age to even qualify), but for some seniors, they’re the difference between poverty and survival. Here are the basics:
- With a reverse mortgage, the bank loans you money on the equity in your home, but you don’t have to pay it back during the term of the loan. Essentially, instead of you paying the bank, the bank pays you. This is true until you (or your spouse, if he or she is also a borrower) no longer use the home as your primary residence.
- There are no financial qualification requirements, although you do have to be at least 62 years old to have a reverse mortgage. Also, depending on the type of reverse mortgage you choose, you might have to attend a loan counseling session.
- You can choose how to receive the proceeds of your reverse mortgage. You can be paid in one lump sum or every month, or you can have your loan proceeds in the form of a line of credit.
- When you take out a reverse mortgage, any other loans secured by your home are paid out of the reverse mortgage proceeds.
If you’re considering a reverse mortgage, you’d be wise to learn as much as you can before settling on a loan. Just like shopping for a traditional mortgage, you’ll want to know all the details of your loan and you’ll want to shop for the best terms. A financial advisor with reverse mortgage experience can help you decide whether a reverse mortgage is right for you.