Senior citizens who may qualify for a reverse mortgage may be able to use this particular type of home loan to their advantage due to the specifics of this mortgage. A reverse mortgage uses a homeowner’s equity to provide them with funds for a variety of purposes, but a reverse mortgage is a loan that a homeowner doesn’t have to repay as long as they live in their home and pay their property taxes.
However, it’s important to realize that a reverse mortgage isn’t free money but rather it’s debt that will eventually have to be repaid. Usually, a reverse mortgage is repaid through the money from a homeowner’s estate or the lender will simply take possession of a homeowner’s house after they pass away. It’s because of this, among other reasons, why homeowners need to do their homework and not rush into a reverse mortgage.
Many advisers will caution against a reverse mortgage because of the fact it doesn’t have to be repaid by the homeowner, in most cases. The reverse mortgage principal is attached to interest and increases over time and isn’t paid down, so this can create a large amount owed depending on the amount a homeowner borrows, the life of the loan, and interest rate.
Homeowners considering a reverse mortgage are often told to look at both the good and the bad that comes with this mortgage and see how it will effect their life and finances. While it’s a personal decision as to whether a homeowner obtains a reverse mortgage, it’s important for any homeowner to make certain a reverse mortgage is going to be in their best financial interest before they proceed.