With a typical mortgage, you pay off the principal of your loan and gain equity from the bank.
With a reverse mortgage, you give the bank equity in exchange for payment to you.
That’s right, it’s a mortgage where the bank pays you.
How it works:
Essentially, a reverse mortgage is a way for you to sell your home back to a financial institution if you are more than 62 years old. You can choose whether you get a lump sum payment for the home or if you get monthly payments. You live in the home while the bank or financial institution pays you.
How the loan is repaid:
The loan is paid off with the proceeds of the home sale at a later date or by refinancing the loan to start repaying it to gain back the equity in the home. The benefits of a reverse mortgage are that you’ll never owe more than the sale of the home recoups, you and your family won’t be stuck with extra debt later.
When the loan is repaid:
Typically, certain events will trigger the payback of the loan. These events usually include the sale of the home at any time, the death of the borrower, or if the borrower moves permanently (doesn’t occupy the home for 12 months.) At that time, the home is sold by the bank or financial institution, and the proceeds pay back the loan debt. If you still have some equity in the home, you will receive those proceeds from the sale.
If the sale of the home is triggered by the death of the borrower, the heir(s) of the estate will have the option to repay the loan by refinancing it. They may choose to pay it back to regain the equity in the home for themselves. Remember, the property sale pays back the loan in full, and no one is stuck with extra debt in the case that the sale doesn’t recoup the loan amount.
Whether or not a reverse mortgage is right for you depends on your future plans and your financial situation. We encourage you to talk to your family or a financial advisor to see if you would benefit from a reverse mortgage. Each reverse mortgage is unique, and we have helped many homeowners achieve their goals by finding the right reverse mortgage for them from a financial institution they trust.