What is a Reverse Mortgage?
A Reverse Mortgage, or Home Equity Conversion Mortgage (HECM), is a loan that allows borrower(s) age 62 and older to purchase a new home, or access their equity in their existing one, without the burden of monthly mortgage payments
Why Would I Get a Reverse Mortgage?
The major benefit of a reverse mortgage is the ability to buy a home or access cash without having to make a monthly payment, alleviating borrowers’ financial burden. They are used for many purposes, including:
- Creating additional income or a financial safety net of available funds
- Financial planning to delay drawing Social Security
- Downsizing or Upsizing
- Relocations to be closer to family members or medical facilities
- Purchasing a second home or rental property
- Gifting funds to family members
- Rescuing family members in financial distress
How is a Reverse Mortgage Repaid?
Instead of making monthly payments as you would in a traditional mortgage, a reverse mortgage is paid in one lump sum at the end of the loan. This typically occurs:
- When the loan term ends
- When the borrow is deceased
- If the borrower no longer lives in the property as their primary residence
- If the borrower does not uphold the terms of the loan (adequately maintaining the property and paying taxes and insurance)
Most often, the reverse mortgage is repaid by selling the property and using the proceeds to pay off the loan.