Aug 12, 2014 | Real Estate Law, Reverse Mortgages |
By Ryan McNeill, Attorney Although most buyers understand how a traditional fixed or variable rate loan works, there is a lot of misinformation out there for borrowers interested in a reverse mortgage. What is a reverse mortgage? A reverse mortgage is a home loan available for borrowers 62 years old or older that allows for a conversion of equity in the home into cash. A reverse mortgage is different from a standard equity line of credit in that it is available regardless of income and there are no monthly payments. The most important difference between a traditional loan and a reverse mortgage are the terms of repayment: no payment is required to the bank until you die, you leave your home for more than 12 consecutive months, or you sell your home. Is a reverse mortgage right for me? The main drawback of a reverse mortgage is that the fees and closing costs associated with a reverse mortgage are generally much higher than that of a traditional loan. Although these costs can be added to the principal balance of the loan, this will make the loan much more expensive over a long period of time than a traditional mortgage. There are options for lower cost reverse mortgages in certain situations, however. An ideal situation for a reverse mortgage would be an individual or couple over age 70 with the home paid off and who may be having a hard time meeting monthly expenses on a fixed income. A traditional mortgage would not be as beneficial in this situation because it would simply create an additional monthly payment and create the...
