How Does a Reverse Mortgage Work? | Financial Debt Solutions

How Does a Reverse Mortgage Work Anyway?

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Senior citizens on a fixed income today are asking themselves “how does a reverse mortgage work?” This article will hopefully clear up some misunderstandings as to how a reverse mortgage works.

Simply put, a reverse mortgage is a special loan program available to senior homeowners aged 62 and over. The uniqueness of a reverse mortgage is the homeowner’s ability to receive money from the lender without interest, instead of making payments to the lending institution through a conventional home loan. There are typically three ways to receive this money: by means of a lump sum, a series of payment installments, or as a line of credit that can be drawn upon at any time.

A reverse mortgage loan is only required to be repaid when the home is no longer occupied by you or your spouse. This repayment is usually accomplished through the sale of the home. Once the home has been sold and the reverse mortgage balance has been paid in full, any remaining proceeds go to you or your estate. Essentially, with a reverse mortgage loan, you are allowed to remain in your house until you either pass away or vacate, upon which the remaining amount of the loan must be paid in full. The hope is that you will have continued to build equity in the home in order to not only pay off the loan, but realize some money after the sale for yourself or your estate.

There are numerous advantages that come with a reverse mortgage loan. The income received from a reverse mortgage loan can help you make ends meet should social security and retirement funds not be enough. Evidence of this fact is that, according to the US Department of Labor, the number of seniors returning to work has increased more than twenty five percent in the last decade. The obvious reason: retirees can no longer support themselves on social security and retirement alone. When receiving a reverse mortgage loan, you can add that amount of money to your other income, thus reducing the financial level of stress in your retirement.

In addition, the money received from a reverse mortgage is tax free. As we continue to see taxes eat up more and more of the income retirees receive, the tax free benefit of a reverse mortgage is indeed a huge plus. Even more of a benefit: a reverse mortgage does not disqualify you for Medicare or social security benefits, much needed by seniors aged sixty-two and over.

Hopefully, this article has helped answer your question “how does a reverse mortgage work” and cleared up some confusion as to the benefits available for seniors considering applying for a reverse mortgage loan.