A reverse mortgage is a home loan for individuals or couples 55 years or older. You borrow from the value of your home and does not require monthly mortgage payments. However, interest is added to the loan’s balance and if no payments are made the interest can eventually exceed the value of the home. Reverse mortgages are risky and you need legal advice before considering this even as an option.
Advertising makes a reverse mortgage sound attractive because they push 4 points of interest:
1. You don’t have a monthly payment until you move.
2. You can receive a lump sum of money if you’ve paid off your home—sometimes 50% of the value of your home.
3. If you are house poor, you have extra cash money—you can use the money for healthcare needs or home repair and living expenses.
4. Tax-free source of income
Interest on the reverse mortgage increases which in turn decreases the equity you have in your home. The interest can sometimes increase to more than the house is worth and there are higher interest rates than most mortgages.
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