What is a Reverse Mortgage?
A reverse mortgage is a financial product that allows homeowners, typically aged 62 or older, to convert a portion of their home equity into cash. This can be particularly beneficial for retirees looking to supplement their income during retirement. Unlike a traditional mortgage, where the borrower makes monthly payments to the lender, in a reverse mortgage, the lender pays the homeowner.
Homeowners can use the funds from a reverse mortgage for various purposes, including covering living expenses, paying for healthcare, or making home improvements. Importantly, the homeowner retains ownership of the home and is not required to make any monthly mortgage payments. Instead, the loan is repaid when the homeowner moves out, sells the home, or passes away.
Types of Reverse Mortgages
- Home Equity Conversion Mortgage (HECM): The most common type, insured by the Federal Housing Administration (FHA).
- Proprietary Reverse Mortgages: Private loans that can provide more cash options, typically for higher-valued homes.
- Single-Purpose Reverse Mortgages: Offered by some state and local government agencies, these are for specific purposes like home repairs or property taxes.
It's essential for homeowners to understand the implications of a reverse mortgage, including potential impacts on estate planning, long-term care, and inheriting the home. Consulting with a financial advisor or estate planning attorney is advisable to ensure that the decision aligns with the individual’s financial goals and family circumstances.