A home equity conversion mortgage, or reverse mortgage, is a lending option that gives qualified homeowners the ability access the equity in their home. The benefits of a reverse mortgage include the ability to access a regular stream of funds or access to a line of credit when you need additional funds for life’s many unexpected events. However, reverse mortgages do have risks that you need to consider.
How a Reverse Mortgage Works
A reverse mortgage is designed to make payments to you from the unencumbered value of your home, which is the difference between the appraised value and the loan balance on your home. After you obtain a reverse mortgage, you will receive a lump sum or monthly payments from your lender; provided, however, you remain in the house and use it as your primary residence. If you have an existing mortgage, you may have to pay the balance of that mortgage as part of obtaining a reverse mortgage, but you will otherwise not have to make payments on the reverse mortgage until you sell the home or stop using the home as your primary residence. When you pass away, the lender will be paid upon the sale of the home.