- Reverse mortgages are only available to homeowners who are 62 years of age or older. When an eligible homeowner takes out a reverse mortgage, he receives a lump sum payment of cash, periodic payments such as monthly payments, or a credit line that he can access when he needs extra cash. According to the U.S. Federal Trade Commission, borrowers do not make periodic monthly payments on reverse mortgages like they would with a traditional mortgage.
- The purpose of a reverse mortgage is to provide cash flow to retirees by tapping into the equity in their homes. If the borrower had to make monthly payments immediately after borrowing funds, it would defeat the purpose of the mortgage. Instead of paying reverse mortgages with monthly payments, balances owed are typically not due until the borrower dies or sells the home with the mortgage. A borrower could potentially go years without ever making a payment on a reverse mortgage.
- Borrowers who take out reverse mortgages to pay for large, unexpected expenses may wish to pay back their mortgages before death or the sale of the home. Borrowers may be able to pay back reverse mortgages early if they wish to depending on the terms of the mortgage. If a borrower happens to break any of the obligations in the mortgage, such as paying the real estate taxes or insurance, she may be obligated to pay back the loan.
- Reverse mortgages are meant to go unpaid until the borrower dies or leaves the home. Borrowers who wish to tap into the equity of their homes to access cash and then pay back the borrowed funds over time via monthly payments can do so by taking out a second mortgage on the home. Another option is a home equity line of credit (HELOC), which allows the homeowner to borrow against the value of his home up to certain limits and then pay back borrowed funds over time.
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