According to AARP, a reverse mortgage is “a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. You typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older. “
What is the Difference Between a Reverse Mortgage and a Traditional Mortgage?
The difference between a reverse mortgage and a traditional mortgage is that with reverse mortgage, you are not subject to a credit check and you do not have to make monthly mortgage payments. More importantly, with a reverse mortgage, you will never lose your home.
With a traditional mortgage, AARP explains it this way: "When you purchased your home, you probably made a small down payment and borrowed the rest of the money you needed to buy it. Then you paid back your traditional mortgage loan every month over many years. During that time, your debt decreased; and your home equity increased.
Reverse mortgages have a different purpose than traditional mortgages. With a traditional mortgage, you use your income to repay debt, which builds up equity in your home. With a reverse mortgage, you are taking the equity out in cash. Therefore, you can live in your home and use the equity towards payment of taxes and upkeep of the home.
Reverse mortgages should be researched and you should speak to an experienced professional. Make a list of questions and ensure that every one is answered. Remember, a reverse mortgage will eventually eat up all the equity while you are still living in your home. Therefore, before making any decision, discuss this with your spouse and family members to determine if a reverse mortgage is right for you.