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A reverse mortgage is a type of home loan that doesn’t require any payments until after you die, as long as you continue living in your home. If you move out or decide to sell your house while still alive, the reverse mortgage comes due immediately. You can receive the loan proceeds in one lump sum or in monthly income payments.
It’s important to be aware of the age restrictions for reverse mortgages: Everyone listed on the deed of the house, even if they don’t sign the loan, must be at least 62 years old for the house to qualify for a reverse mortgage. Also, reverse mortgages aren’t useful if you still owe a lot on your regular mortgage. For example, if you owe $100,000 on your house, and you get a reverse mortgage for $125,000, you would only receive $25,000. The rest of the reverse mortgage proceeds would be immediately applied to your regular mortgage.
The main pros and cons of reverse mortgages are:
While reverse mortgages can provide significant cash during retirement, they are not the wisest choice for all families. If you are thinking about a reverse mortgage, discuss your options with a neutral financial adviser. Don’t rely on the advice of someone who works for the lender. The decision to take out a reverse mortgage has a big impact on you and your heirs. You can learn more about reverse mortgages here.