You have likely seen the commercials for reverse mortgages. While the advertisements urge viewers to “call now to secure you reverse mortgage today” and make them seem risk-free, obtaining a mortgage of this type is a serious decision that should not be made without fully understanding its pros and cons.
A reverse mortgage is a loan available to homeowners who are 62 years or older that enables them to convert part of the equity in their home to cash, ideally to cover basic monthly living expenses and pay for health care (though there is no restriction on how proceeds can be used). The amounts that can be borrowed are determined by a formula that takes into account the percentage of the home’s value based on the borrower’s age and current interest rates.
With a traditional mortgage, the borrower makes payments to the lender. The reverse mortgage “reverses” that payback stream…
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