If you're 62 years of age or older and want money to supplement your income, you might consider a reverse mortgage. You'll be able to convert part of your home equity into cash without having to sell your home or keep paying your mortgage.
In a reverse mortgage, a lender pays you what amounts to an advance payment on your home equity. The payment is usually tax-free. Generally, the homeowner doesn't have to pay back the money for as long as he or she lives in the home — the homeowner keeps the title. Selling the home reaps money to repay the loan, and any money left over after the sale goes to the owner or his or her heirs.
Here are some downsides to reverse mortgages:
There are three types of reverse mortgages:
HECMs and proprietary reverse mortgages may be more expensive than traditional home loans. Upfront costs can be high. This is an important aspect to consider, particularly if you plan to stay in your home for just a short time or borrow a small amount.
You may have much less income to work with once you retire, and paying your monthly mortgage payments may be rough. With a reverse mortgage, you can supplement a diminished income and continue to pay your bills. Speak with a financial professional to see whether a reverse mortgage is right for you.
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