A reverse mortgage is a mortgage loan program that is specifically geared toward helping homeowners at least 62 years of age. The reverse mortgage is designed to help convert home equity into cash. Home equity is the difference between property’s market value and the outstanding balance you have left to pay off. Whenever you make a payment on your mortgage, you build your equity. Therefore, many senior homeowners have considerable equity to dip back into with a reverse mortgage.
For some retirees, cash flow is a problem. But many have enormous wealth in the value of their home. Having invested so much of their income over the years on their mortgage, older homeowners typically use the money they convert from their reverse mortgage to cover medical insurance costs or other living expenses that come with old age. However, there are no restrictions on how the money is ultimately used.
A reverse mortgage works exactly how it sounds like it would. Instead of the borrower making payments to the lender, the lender makes monthly payments to the borrower. Older homeowners who apply for this loan receive a regular disbursement of their loan payments back from their traditional mortgage.
As far as paying off a reverse mortgage, monthly payments toward the loan balance are not a priority until the house is sold or otherwise vacated. You heard correctly! As long as the homeowners are still living in that residence, they will not be asked to pay back any of the money they borrow. Property taxes and homeowners insurance become the main expenses, as they must stay current on both those payments for the reverse mortgage to qualify.