Is One Right for You?
If you are 62 or older, own a home and have equity in it, a reverse mortgage is a way to cash out the equity while you are living in the home, not have to make monthly mortgage payments and receive a cash payment.
It is known as a “rising debt” mortgage because the reverse mortgage company pays you a lump sum of money (which includes paying off your current first mortgage). Interest accumulates on this money, but you do not pay it back while living in the home. As time passes, the debt continues to rise. Your home value may or may not keep pace, but even it it does not, the debt owed to the reverse mortgage company can never exceed the value of your home. You also retain title to the home. It is yours as long as you remain in the house.
The debt is repaid to the reverse mortgage company when you die, sell the home or permanently move out of your home, but this could be 25 years down the road. When you do leave the home, it must be sold to satisfy the debt. If the home’s value has not risen significantly, and because you have not been making any mortgage payments to pay down the debt, there is a good chance that after the sale of the home, there will be nothing left over to will to your heirs. This is the downside of a reverse mortgage. There are other stipulations for a reverse mortgage. You must continue to pay property taxes, continue to insure the property and continue to make home repairs.
Reverse mortgages are not for everyone, but if you have sufficient equity in your home, would like to eliminate your current mortgage payment and stay in your home, such a mortgage may be the way to go. Please contact your financial advisor before making any decision regarding a reverse mortgage.