Home Mortgage Types: Reverse Mortgages
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by: marciafreeman
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Do you have significant equity tied up in your home mortgage? Are you looking for a new source of passive income? And are you 62 or older? If you answered yes to all three questions, you should give serious thought to a reverse mortgage. A reverse mortgage is a form of home mortgage in which a lender pays you out of the equity in your home. You may choose to get the value of your property in monthly payments or in a lump sum. You are allowed to remain in your house until you move away, enter a retirement community or nursing home, or pass on.
Will my taking out a reverse mortgage cancel out my current home mortgage?
No, but you are strongly encouraged to pay off the remainder of any existing home mortgages with the proceeds of your reverse mortgage. In some areas, homeowners are not allowed to have both a regular home mortgage and a reverse mortgage on the same piece of property. If you live in one of those areas, you will be required to put your reverse mortgage payments toward your home mortgage, and will not be able to use the income for other purposes until your mortgage is paid off.
Will my heirs still be able to inherit my house if I take out a reverse mortgage on it?
Certainly. Your heirs may repay the value of the reverse mortgage, attempt to sell the house to cover the cost of the reverse mortgage, or let the bank or other lender resell the house itself. Your heirs may need to take out a new home mortgage on the property to cover the cost of the reverse mortgage. However, taking out a reverse mortgage strongly decreases the likelihood that the property will stay in the family. Consider a reverse mortgage only if passing on your house to your heirs is not important to you.
What happens if I "outlive" the loan?
If the lender completes the full series of reverse mortgage payments while you are still alive and living in the house (that is, if you receive the full value of the house), you do not need to relinquish your house to the lender and move out. You may keep the money and continue to live in the house for as long as you need or want to. Staying in the house will not create a debt for you, your heirs, or your estate. In fact, it is not possible for a reverse mortgage to put you into debt. This is one of many reasons that homeowners find reverse mortgages more appealing than a normal home mortgage.
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