Reverse Mortgage
A reverse mortgage is a loan available to homeowners aged 62 or older that allows them to convert part of their home's equity into cash without having to sell the home or make monthly mortgage payments. The loan is repaid when the borrower moves out permanently, sells the home, or passes away.
Example
“At age 68, Martha decided to get a reverse mortgage to supplement her retirement income while staying in her family home.”
Memory Tip
Remember 'reverse' means the money flow is backwards - the bank pays you instead of you paying the bank.
Why It Matters
Reverse mortgages can provide crucial income for seniors who are house-rich but cash-poor, allowing them to remain in their homes while accessing funds for living expenses or medical costs. However, they reduce the equity that can be passed to heirs and come with significant fees and interest charges.
Common Misconception
Many people believe the bank will own their home with a reverse mortgage, but borrowers retain ownership as long as they live in the home and meet loan obligations like paying property taxes and insurance.
In Practice
A 70-year-old homeowner with a $400,000 house and no existing mortgage might qualify for a reverse mortgage of around $200,000, receiving monthly payments or a lump sum while continuing to live in the home without making mortgage payments.
Etymology
Called 'reverse' mortgage because unlike traditional mortgages, the lender pays the homeowner instead of the homeowner paying the lender.
Common Misspellings
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