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What is a Reverse Mortgage?
A reverse mortgage is a loan available to seniors over the age of 62 which allows them to convert equity in their home into cash.
These loans were created to give seniors access to cash for expenses such as home improvements, unexpected medical costs, and in-home care by utilizing the accumulated equity in their homes.
This type of loan is called a reverse mortgage because instead of the borrower making monthly payments to their lender as they would with a traditional mortgage, the lender makes payments to the borrower. Unlike a traditional home equity loan or second mortgage, a reverse mortgage does not have to be repaid until the borrower no longer occupies the home as their primary residence.
Is a Reverse Mortgage Right For You?
There is a great deal of skepticism about reverse mortgages, and that’s not necessarily bad because people should exercise caution when utilizing debt; however, reverse mortgages can improve retirement income in a sensible way.
The old notion that reverse mortgages should only be taken out as a last resort simply is no longer true today.
Reverse mortgages can be wisely used to bridge income for delaying social security benefits, fund tax payments on Roth IRA conversions, provide larger inheritances for heirs, provide a contingency fund for unexpected spending needs or negative stock market returns which can threaten a primary source of retirement income.
The most common reverse mortgage is the Home Equity Conversion Mortgage (HECM) which is insured by the FHA. An alternative option is the Proprietary Reverse Mortgage which is not backed by the federal government.