A reverse mortgage is a loan that enables homeowners age 62 or older to borrow against the equity in their home without having to sell their home, give up title, or take on a new monthly mortgage payment. The loan proceeds can be used for any purpose, or taken out as a lump sum payment, fixed monthly payment, line of credit, or a combination (your actual options may depend on the type of reverse mortgage that is taken out).
Why the name?
It is called a reverse mortgage because it works the opposite of how a regular mortgage works. Instead of you taking out a loan and making payments to the lender, the lender makes payments to you.
The original purpose of reverse mortgages was to provide a source of money to people in or near retirement so that they could pay debts, bills, and recurring expenses such as healthcare costs. Fortunately for borrowers, many reverse mortgages do not require a credit or income test to qualify.
The borrower is not required to pay taxes on the loan proceeds received. While Social Security and Medicare benefits are not affected, Medicaid and Supplemental Social Security benefit eligibility could be affected by the receipt of proceeds.
As a borrower, you are not required to make payments on the mortgage as long as you are living in the house. Payment is not required until you vacate and/or sell the home.
If you prefer, you can pay the mortgage down fully or partially. How the payments are allocated will depend on the type of reverse mortgage. It is also important to note that property taxes and homeowner's insurance continue to be your responsibility.
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