A reverse mortgage is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (e.g., into aged care).
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (e.g., 30 years) the mortgage has been paid in full and the property is released from the lender.
In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
Reverse Mortgage Highlights:
Must be at least 62 years old
House must be primary residence
No income or credit score requirements
Payment can be a lump-sum, monthly cash payout, line of credit held in reserve, or combination of all three
In California, you can use proceeds for purchase of a new home
Reverse mortgages can be a good alternative for seniors struggling with monthly bills, yet sitting on a significant amount of equity in their homes.