A reverse mortgage is to a large extent self explanatory. When you take out a typical mortgage you pay the lender incrementally over a number of years, and as you make payments you build equity in the home. With a reverse mortgage the lender pays you instead, and in the process they are buying equity in your home.
You pay back nothing while you are living in the home, and you can continue living in it for the rest of your life. If you pass away, your heirs can simply sell the house, pay what is due on the reverse mortgage, and keep any remainder. Should you move from the home rather than live in it for the rest of your life you must do the same thing; sell it, pay of the reverse mortgage balance, and move on any way you see fit.
Home Equity Conversion Mortgages (HECMs) are backed by the government so they are quite legitimate. You are even required to go through a HUD-approved counseling session so you know exactly what you are getting into before you can close on a HECM. You must be at least 62 to obtain a reverse mortgage, and it should be mentioned that they can be obtained through private companies as well that back their own products.
Unlike refinancing your home conventionally, you are not required to pay anything so the risks are minimal. You must pay property taxes and insurance and keep the home in adequate condition or the mortgage can be declared due. The home must remain your primary place of residence, so the mortgage can also be called due if you were to live elsewhere for 12 months or longer.
It should be noted that there are significant expenses involved including closing costs, servicing fees, interest, and reverse mortgage insurance. But these can be folded into the loan balance, and if the house was to appreciate this could offset these costs by the time the mortgage became due.
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