A reverse mortgage is a home loan that provides cash payments based on home equity. Sometimes called a home equity conversion mortgage (HECM). This type of loan doesn’t require the homeowner to make monthly mortgage payments. Though they are still responsible for the property taxes, homeowner’s insurance, and HOA fees if any. However, it allows the homeowner to access the equity they’ve built up in their home.
Pros of a Reverse Mortgage
- It allows people on a fixed income to remain in their homes until their death, without worrying about the financial burden of a mortgage.
- The homeowner keeps their home, regardless of their financial straits.
- The money can be disbursed in a variety of ways (such as a lump sum cash payment, or a monthly payment of funds).
Cons of a Reverse Mortgage
- The interest rate on a HECM is higher than on a traditional home equity loan.
- Your heirs are responsible for either paying off the balance of the reverse mortgage or selling the home in order to cover the balance.
- If you haven’t lived in the home for a year or more, you may not qualify to get the reverse mortgage.
Disclaimer: This material is not from HUD or FHA and has not been approved by HUD or a government agency.