Casey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified.
Casey Bond ContributorCasey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified.
Written By Casey Bond ContributorCasey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified.
Casey Bond ContributorCasey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified.
Contributor Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Updated: Nov 11, 2022, 4:22am
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If you’re a homeowner at or near retirement age, you’ve probably seen plenty of TV commercials or heard ads on the radio about reverse mortgages. These loans can sound pretty appealing, especially if most of your net worth is tied up in your home. But there are some definite downsides, too.
If you’ve been considering this type of loan, first make sure to weigh all the pros and cons of a reverse mortgage first.
FEATURED PARTNER OFFERWhat is a Reverse Mortgage
A reverse mortgage is a secure financial tool which allows property owners 62 years and older to borrow against their home equity
Lump sum, monthly payments, a line of credit or a combination of the three
On Mutual of Omaha's WebsiteA reverse mortgage is a secure financial tool which allows property owners 62 years and older to borrow against their home equity
Lump sum, monthly payments, a line of credit or a combination of the three
If you’re a property owner who is at least 62 years old, you can borrow against your equity to get cash or a line of credit from a lender. However, unlike a regular mortgage, you aren’t required to make monthly loan payments; you’ll repay the loan when you or your heirs sell the house.
The most common type of reverse mortgage is known as a home equity conversion mortgage (HECM). These loans are backed by the Federal Housing Administration (FHA); borrowers pay an insurance premium in order to participate, which is used to fund FHA reserves. If a borrower fails to repay their loan, those reserves are drawn against to pay back the lender.
In addition to being at least 62 years old, there are a few other requirements to get an HECM:
If you are approved for a reverse mortgage, you have to sit through an information session given by an approved HECM counselor.
You’re probably wondering how it’s possible to get a mortgage with no payments. Normally, when you take out a mortgage loan, the bank gives you a lump sum that you pay back with interest over time. At the end of the term, the loan is paid down to $0.
A reverse mortgage works in, well, reverse. The lender actually makes payments to you: You can choose to receive a lump sum, monthly payments, a line of credit or some combination of those options.
The interest and fees associated with the loan get rolled into the balance each month. That means the amount you owe grows over time, while your home equity decreases. You get to keep the title to your home the whole time, and the balance isn’t due until you move out or die.
When that time comes, proceeds from the home’s sale are used to pay off the debt. If there’s any equity left over, it goes to the estate. If not, or if the loan is actually worth more than the house, the heirs aren’t required to pay the difference. Heirs also can choose to pay off the reverse mortgage or refinance if they want to keep the property.
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