Home buyers often save rigorously for their home, forgoing expenditures and making sacrifices to pay down the mortgage and save for retirement. At retirement they get to enjoy their dream home debt-free. The only problem with this scenario for a lot of retirees is that they live on a fixed, and often not very large, income.
One option is to take a reverse mortgage – a loan against the home, which brings you money while you still live in your home. You can usually borrow between 10 to 40 percent of the value of your home depending on your age. A reverse mortgage loan requires no repayment for as long as you live in your home and you will never owe more than the value of your home.
This loan is different from a traditional mortgage in two ways. In order to qualify for a traditional mortgage, the bank checks your income to see how much you can afford to repay each month, but with a reverse mortgage there are no monthly repayments. With most loans, if you fail to make your repayments, you are in trouble. With a reverse mortgage, you don’t have any repayments. Thus, the debt grows larger as you keep getting cash advances and the interest is added to the...
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