A reverse mortgage is special type of loan for senior homeowners that use a home's equity as collateral and you do not have to repay the loan as long as this home remains your principal residence. Because a reverse mortgage is a special type of loan it also have special features that you should be aware of.
Unlike the typical home loan, the amount you owe on a reverse mortgage grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. Although you do not make monthly loan payments, it does mean that means your total debt increases over time and the equity that you have in your house decreases.
Therefore, reverse mortgages can eat up some of all of the equity that you have in your home, which will leave smaller assets for you and your heirs. A "nonrecourse" clause, found in most reverse mortgages, prevents either you or your estate from owing more than the value of your home when the loan is repaid.
Also, unlike typical bank loans, lenders of proprietary reverse mortgages typically charge origination fees and other closing. They may also charge servicing fees during the term of the mortgage. For a proprietary reverse mortgage the lender will determine these fees and costs.
Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to a financial index and will likely change according to market conditions. Get Monthly Cash Flow with a Reverse Mortgage
Will I Still Own My Home?
Just remember, reverse mortgage borrowers are still homeowners and because you retain title to your home, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. So, for example, if you don't pay property taxes or maintain homeowner's insurance, you risk the loan becoming due and payable.
Loan costs can vary by a lot from one type of reverse mortgage to another. Not all reverse mortgages include the same types of loan costs. As a result, the true, total cost of reverse mortgages can be difficult to understand and compare. That is why federal Truth-in-Lending law requires lenders to disclose a "Total Annual Loan Cost" for these loans.
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