A reverse mortgage is a home equity loan for older homeowners.
It does not require monthly payments and instead lets the borrower convert a portion of the equity into cash.
Equity may be paid out monthly for a fixed period, or as a lump sum, or as a line of credit.
Here are the Pros and Cons of a Reverse Mortgage:
- Does not require monthly payments from the borrower.
- Proceeds can be used to pay off debt or settle unexpected expenses.
- The money can pay off the existing mortgage.
- Funds can improve monthly cash flow.
- Fees and other closing costs can be high.
- Borrower must maintain the house and pay property taxes and homeowners insurance.
- A reverse mortgage can complicate one’s wish to keep the house in the family.
A reverse mortgage makes sense for people who don’t plan to move, can afford the cost of maintaining their home and want to access the equity in their home to supplement their income or have money available for a rainy day.
Some people even use a reverse mortgage to eliminate their existing mortgage and improve their monthly cash flow.