Basics of a Reverse Mortgage

Reverse mortgages are starting to grow in popularity. In general the borrower must be over 62 years of age. This type of mortgage allows the borrower to receive monthly cash payments by tapping into their home's equity every month.

The mortgage interest that the borrower will usually pay is added to the balance of the reverse mortgage. So the debt against the property increases each month. Most reverse mortgage programs do not have income qualifications. A retiree with no income can qualify. The interest varies and can fall between 6 percent and 9 percent. The closing costs for a reverse mortgage are generally higher than with a regular mortgage refinance $15,00 - $20,000). The lender may also may keep the appreciation accrued in the home once the borrower passes, even if this appreciation is more than necessary to cover the remaining mortgage balance.

In my opinion, reverse mortgages are only good for individuals that do not have an income. If a retiree has some sort of income, a home equity line of credit (HELOC) may be a better choice. They have much lower closing costs and allow you to keep all of the remaining equity in your home, which allows you to pass it to your heirs.