What is a reverse mortgage?
A Reverse Mortgage (RM) is a type of home equity loan that allows senior
homeowners to convert some of the equity in their home into cash. RM's work much like traditional mortgages, only in
reverse. Rather than making payments to your lender each month, the lender
will pay you.
Unlike conventional home equity loans, most RM's do not require repayment as long as the borrowers
remain in the home. The loan becomes due and payable when the borrower(s)
ceases to occupy the home as their principle residence. This can occur if
the borrower (or last remaining spouse, in cases of couples) passes away,
sells the home, or permanently moves out of the home. The borrower, or
their heirs, can choose to pay off the loan balance through a sale of the
home, by refinancing or a payoff in cash. In any event, the amount owed on
the reverse mortgage cannot exceed the value of the property at the time
the loan becomes due and payable. Moreover, if the home is sold and the
sale proceeds exceed the amount owed on the reverse mortgage, the excess
proceeds are paid to the borrower or their estate.
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