A reverse mortgage is a type of loan that lets people 62 and older borrow against a part of their home’s equity. Unlike with a traditional mortgage, instead of making monthly mortgage payments to the lender, the borrower receives money from the lender.
The loan doesn’t come due until they move out, sell the house, fail to meet the loan obligations, or die — in which case the heirs assume responsibility for the loan.
Read on to learn more about reverse mortgages and whether they are the right choice for you.
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How does a reverse mortgage work?
First, in order to understand how a reverse mortgage works, you need to understand home equity. In real estate terms, equity is the current market value of your property minus the amount of all loans still owed on it.
For example, if your home is valued at $300,000 and you owe $100,000 on a mortgage, you have $200,000 in home equity.
If you’ve already paid off your mortgage (or didn’t have one in the first…