What is a reverse mortgage? How does a reverse mortgage work?
This video provides an overview of reverse mortgages for older consumers and their families. You’ll learn how reverse mortgages work and what issues you should consider before applying for one.
For more information, check out the CFPB’s downloadable Reverse Mortgage Discussion Guide: http://consumerfinance.gov/reversemortgage
Are you or someone you know considering getting a reverse mortgage? A reverse mortgage is a type of loan for homeowners aged 62 and older often used to help pay for living expenses.
Here’s how they work.
With a reverse mortgage, you borrow money against the equity in your home. Instead of paying interest and fees each month, they are added to your loan balance. As the loan balance grows, your home equity shrinks. Once the last borrower no longer lives in the house, the loan must be paid back, but you will pay no more than the value of the house.
Keep in mind that you can lose your home if you don’t meet the loan requirements.
Unlike a traditional mortgage, you have no monthly mortgage payments. But you are still responsible for paying your property taxes & homeowner’s insurance, and maintaining your home. If you can’t pay these expenses, or if you stop living in your home for most of the year, you can lose your home to foreclosure.
A reverse mortgage is not a government benefit. The loan is made by a private lender and it must be paid back.
You’ll need a plan for your future. Think about your future housing and financial needs. On average, a 65 year old is likely to live another twenty years or more.
Down the road, you may want to live in a smaller house or move closer to family. If so, a reverse mortgage may not be right for you because you’ll need to pay off that growing loan balance when you sell your home and may not have enough left to buy a new home.
Also, borrowing a reverse mortgage at a young age can be risky.
Later in life you’re more likely to have less income and higher health care bills, which could be a problem if you run out of loan proceeds.
To learn how reverse mortgages work, and whether they are the right option for you, check out our reverse mortgage discussion guide: http://consumerfinance.gov/reversemortgage
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