A type of mortgage in which a houseowner can borrow money against the
value of his or / her house.
No repayment of the mortgage (principal or / interest) is required until the borrower dies
or / the home is sold.
After accounting for the initial mortgage amount, the rate at which
interest accrues, the length of the loan &
rate of home price appreciation, the transaction is structured so that
the loan amount will not exceed the value of the home over the life of the
loan.
Often, the lender will require that there can be no other liens against
the home. Any existing liens must be paid off with the proceeds of the reverse
mortgage.
Investopedia explains - Reverse Mortgage
A reverse mortgage provides income that people can tap into for their
retirement. The advantage of a reverse mortgage is that the borrower's credit
is not relevant, and is often unchecked, because the borrower does not need to
make any payments.
Because, the home serves as collateral, it must be sold in order to
repay the mortgage when the borrower dies (in some cases, the heirs have the
option of repaying the mortgage without selling the house).
These types of mortgages have large origination costs relative to other
types of mortgages. These costs become part of the initial loan balance &
accrue interest. Senior citizen borrowers with good credit should carefully
analyze the options of a more traditional mortgage, like a home equity loan,
against a reverse mortgage.
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