A Reverse Mortgage works by allowing homeowners who are 62 and older to borrow from their home’s equity without having to make monthly mortgage payments. A Reverse Mortgage loan does not require any monthly mortgage payment, so the interest is added to the outstanding loan balance monthly. Interest only accumulates on the actual balance. A Reverse Mortgage could be good idea if you own your home outright (or have paid off the bulk of your mortgage), but don’t have much cash-flow.
For example, if your budget is strained by ongoing monthly expenses such as medication, food, or utility bills, getting a reverse mortgage can help cover your everyday costs of living and give you some breathing room in your budget, while allowing you to remain in your home.
The amount of funds available from a reverse mortgage are based on the age of the youngest borrower, home value, and current interest rates. You may choose to take funds in a lump sum, a line of credit, monthly payments, or a combination thereof.
Funds received are tax-free and may be used for virtually anything. The repayment of the loan is required when the last surviving borrower vacates the home permanently or fails to maintain property taxes and homeowner’s insurance.
When the loan is repaid, any remaining equity is passed to heirs or however your will or trust dictates. If the loan balance exceeds the home value at time of maturity, no debt will pass to the borrowers’ heirs as reverse mortgages are non-recourse loans.
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