In California where living costs are high many of our mortgage clients over the past few years have reached out to us about whether a reverse mortgage could be a good choice for their needs. A reverse mortgage is a home loan specifically designed for homeowners who are aged 62 or older who have a lot of equity in their home.
Unlike a traditional mortgage where the homeowner makes monthly payments to a lender, a reverse mortgage allows homeowners to convert part of their home equity into cash without selling the property. With a reverse mortgage homeowners can receive the proceeds from their loan as a lump sum, monthly payments, or a line of credit.
One of the most appealing features of reverse mortgages for seniors is that they do not require monthly mortgage payments. Instead, the loan balance accumulates over time, typically with interest. Borrowers are still responsible for property taxes, homeowners insurance, and maintenance of the home. A reverse mortgage loan is repaid when the homeowner sells the home, moves out of the home, or passes away. When one of those events occurs, the proceeds from the home sale are used to repay the reverse mortgage, and any remaining equity goes to the homeowner or their heirs.
There are many advantages to these types of loans but it’s important to remember reverse mortgages can provide additional income for seniors, they come with their own risks and considerations. Interest accrues on the loan balance, which can reduce the equity in the home over time. Before considering a reverse mortgage, homeowners are advised to thoroughly understand the terms and explore all the alternatives for their situation.
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