NEW YORK (WABC) -- So, what is a reverse mortgage? In its simplest form, it's a home loan that allows cash-strapped seniors to borrow against the equity in their home. To qualify, you must be 62 years of age or older.
Among the pros, you can continue to live in your home and even retain its deed.
Another big plus is that unlike a traditional mortgage, borrowers don't make monthly payments.
Also, in a reverse mortgage, the lender pays you, the homeowner, and you can choose to be paid as a lump sum, as a line of credit to tap into as you need it, or as a steady stream of monthly advances for a set period or as long as you live in the home.
Another pro is you can use a reverse mortgage to pay off the existing home loan, freeing up cash to pay bills or enjoy retirement. Or, if you're facing foreclosure, this could be a way to bail yourself out.
But, while you make no monthly mortgage payments you do have to pay property taxes, homeowner's insurance, and continue upkeep on the house.
The Cons of a reverse mortgage is that the loan balance will increase over time as interest accumulates.
Typically, closing costs are high. But, you can cushion the blow by rolling them into the mortgage. One pro tip is that before signing, you should compare terms and rates with a home equity loan.
Finally, eligibility for certain need-based government benefits like Medicaid and Supplemental Social Security may be affected by a reverse mortgage. So be aware, and also watch out for contractors who push reverse mortgages to pay for home repairs. It's a red flag of a scam.
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