A reverse mortgage is like a traditional mortgage in that it allows homeowners to borrow money using their house as security. Also, like a traditional mortgage, the title to the house remains in the borrower’s name. However, unlike a traditional mortgage, a reverse mortgage does not require monthly mortgage payments. Instead, the loan gets paid off when the borrower no longer lives in the house. Borrowers can access their home equity as a lump sum, line of credit, or monthly annuity payments.
There are so many situations where a reverse mortgage is a perfect option for aging in place, and there are also many situations where it might not be the best solution. But that is another newsletter! However, I do think it is important to dispel several misconceptions:
- The home must be debt free to get a reverse mortgage – Not true. The reverse mortgage can be used to pay off an existing mortgage.
- The bank owns your home – Not true. The borrower(s) own the home.
- Heirs can incur outstanding mortgage debt – Not true. Heirs can never be liable for more than the value of the home.