What is a reverse mortgage?
A Reverse Mortgage (RM) is a type of home equity loan that allows
senior homeowners to convert some of the equity in their home into
cash. RM's work much like traditional mortgages, only in reverse.
Rather than making payments to your lender each month, the lender
will pay you.
Unlike conventional home equity loans, most RM's do not require
repayment as long as the borrowers remain in the home. The loan
becomes due and payable when the borrower(s) ceases to occupy the
home as their principle residence. This can occur if the borrower
(or last remaining spouse, in cases of couples) passes away, sells
the home, or permanently moves out of the home. The borrower, or
their heirs, can choose to pay off the loan balance through a sale
of the home, by refinancing or a payoff in cash. In any event, the
amount owed on the reverse mortgage cannot exceed the value of the
property at the time the loan becomes due and payable. Moreover,
if the home is sold and the sale proceeds exceed the amount owed
on the reverse mortgage, the excess proceeds are paid to the borrower
or their estate.
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