The idea of a reverse mortgage feels like a no-brainer to some people and a frightening, last resort to others. That’s because a reverse mortgage involves putting your most valuable asset—your home—on the line.
These types of loans are only available to people over 62. For people who enter into these loans with their eyes wide open, a reverse mortgage can be good way to cover some living expenses or generate some extra spending money in retirement.
After making mortgage payments for many years, you may own all or most of your home. In addition, your home may be worth more than you paid for it. You can always sell your house and cash out, but what if you want to stay in your home and just gain some additional monthly income?
This is the essence of a reverse mortgage: instead of building up the equity in your home, you take it out in the form of monthly payments. The maximum reverse mortgage limit you can borrow against is $625,000, even if your home is worth more. The amount of money you receive from a reverse mortgage depends on a variety of factors, including how old you are, the value of your home, and whether or not you already have a regular mortgage. You should also keep in mind that reverse mortgages involve a lot of fees, which are rolled into the loan and can run as high as $30,000 to $40,000.
During the time you have a reverse mortgage on your property, you always keep the title to your home. The interest rate you pay should be similar to current home mortgage rates, and you only pay back your loan, plus the accrued interest, when you sell your home or die.
If you sell your home, you keep whatever portion of the sale is not required to pay off your reverse mortgage. If you die before you sell your home, your estate will sell your home and pay off the outstanding mortgage(s).
If your home is worth less than the balance of your outstanding reverse mortgage, neither you nor your estate will be on the hook for the difference. That’s a risk that the mortgage issuer takes on.