What is a Reverse Mortgage?

Like it? Share it!
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  

If a mortgage is borrowing money to buy a house slowly over time, then a “reverse” mortgage is selling a house to get money slowly over time.  Make sense?  They can be compared to annuities, because the idea is to pay you a portion of your total value every month (or whatever the agreement says), until the total value has been paid out.  In this case, the total value is your home.

Reverse mortgages are meant for retiring people who want to access the value of  their home while still living in it, until they pass on, and typically require the home to be paid off or have enough equity to make a long-term arrangement possible and profitable for the lender.  Is it of benefit?  That is completely up to those considering using the instrument.  Arguments could be made either way, but here are a few pros and cons.

PROS

  • You get monthly “payments” from the value of your home
  • You typically still get to live in your home until the end of the agreement or your passing, whichever comes first

CONS

  • You sign away your home – be sure to clarify what happens with any residual value that has not been paid to you in the case you pass on (everything is negotiable)
  • You lock in on a monthly payment – over time, the purchasing power of your monthly payment will go down as inflation goes up, so the higher the inflation, the worse it gets for you (again, check options for inflation adjustment with the reverse mortgage company)

 


Like it? Share it!
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  

One thought on “What is a Reverse Mortgage?”

Leave a Reply

Your email address will not be published. Required fields are marked *