What is a Reverse Mortgage and How it Can Help?

Reverse mortgages are an increasing popular tool for people who are aging. As of 2009, it is estimated that one in four homeowners are of retirement age, and this number will only increase as time goes on. Reverse mortgages are a type loan that takes your homes equity and turns it into cash. In a reverse mortgage, the lender pays the borrower a monthly sum of money for a specified number of years or until the borrower dies. In return, the borrower can transfer title to their home to the lender and agrees to leave the house in good condition upon its sale after they die. The benefit of this type of mortgage is that it allows seniors to receive money from their home without having to pay it back until they sell their home, die, or move out.

For any seniors 62 or above, this would be an ideal option who wants to get some extra money while staying in their property. When you take out a reverse mortgage, the bank gives you monthly payments which are based on the value of your home or you can withdraw up to 60% of your equity in one lump-sum payment and get monthly payments after. Reverse mortgage is generally granted to older adults who are close to retirement age who need money for living expenses. When you sign up for a reverse mortgage, the lender will provide you with different payment plans to chose from on how you would want to proceed with payments. One of the benefits of reverse mortgages is that they do not require monthly mortgage payments or interest rates. This will free up some of your monthly income which you can then use for other things such as medical bills or charitable contributions. Another perk of a reverse mortgage is that it does not have any effect on your credit score so you don't need to worry about paying off debt.

With a reverse mortgage, there are no strings attached. You are simply not obligated to make loan payments until you vacate the premises, therefore the balance increases rather than lowering every month as it would be if you were making payments. Before applying for a reverse mortgage, all borrowers should inform themselves completely about everything that has to do with a reverse mortgage. It’s important to know that not everyone qualifies for this type of loan. The borrower must be 62 years old or older and meet certain requirements. Some of these requirements include: living in the home as your primary residence, having substantial equity in your home, and not having any other liens on the property. On top of meeting these requirements, the borrower will need to provide proof of income for at least 12 months before closing on the reverse mortgage.  Some people consider this option for many reasons - they may be single with no children or elderly parents who live with them and they need extra cash for their retirement. Others may not have enough cash on hand to cover living expenses in retirement - medical bills, travel expenses, food costs etc., but they own their home free and clear.

The pros and cons of reverse mortgage refinancing includes:


  • The loan comes with no monthly payments and no requirement for repayment until the borrower dies, sells, or moves out of the house.
  • It can be used to pay off old bills and debts.
  • It allows retirees to stay in their homes without worrying about paying for upkeep.
  • It does not affect Social Security benefits or eligibility, and can provide significant relief for those who need financial assistance as well as those who do not want their children to inherit a house with an outstanding mortgage.


  • Reverse mortgages are expensive and they typically have higher interest rates than traditional mortgage loans.
  • Reverse mortgages can end up costing more money in taxes and administration fees if they are not properly planned for.
  • When you die, your heirs will have to pay off any remaining balances.

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