How Do Reverse Mortgages Work?

How Do Reverse Mortgages Work?

Reverse mortgages are good those retirees who have a great deal of equity in their Real Estate but they need an arrival of cash to sustain their lifestyle. So what truly is a reverse mortgage?

This is a mortgage loan on the equity in your home but in reverse. Your take the cash value out of your home without making mortgage payments while you continue to reside in the residence. Since you don’t make monthly payments, your debt increases. You also do not need to qualify for a reverse mortgage in terms of your income.

There are few qualifications – you generally must be older than 62 and be the owner of the home. The loan will not have to be repaid until:

1. You move out of the home permanently.

2. You sell the residence.

3. You die.

As your debt grows larger, the amount of interest additional to the loan increases. So your equity is falling and your debt continues to increase. If your character value is not increasing rapidly, you may consume the equity during your lifetime.

According to the Federal Trade Commission, there are some downsides you should consider prior to signing up. They are:

1. Lenders charge closing costs and all loan fees to create this loan.

2. Lenders may charge you fees to carry the loan.

3. Your total mortgage amount will probably increase in time.

4. Your equity will decline.

5. Most reverse mortgage loans are given out with variable interest rates. This method the rate can increase based on market conditions.

6. Interest on these mortgages is not tax deductible on income tax until the loan is paid.

7. If you don’t plan to live in the home for an extended period of time, the costs you pay to acquire the loan are just too high.

For more information on this subject, check out the Federal Trade Commission site at or HUD at

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