Eli5: What is a reverse mortgage?
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A reverse mortgage is usually a FHA loan. You have to be a certain age (62). If married, the borrower only has to be 62. Based on the current value, rate and your life expectancy. If you have enough equity, you can take out a lump sum up front or take monthly payments. If the rate is say 6%, that’s the monthly interest you would be paying anyhow, but because you are not, that gets added to the loan balance. At the time of her death, if there is equity, her kids can finance the home, pay back the bank and keep it. They will do a new appraisal and based on her balance at the time, you have options. This is how it’s determined. Not the bank! Sell the home and keep the equity. If there is no equity, great! You can still buy it to keep it or let the bank deal with it. As we age, if I don’t make enough to get by, you bet I’m doing a reverse mortgage. No way I’m going to suffer the last 10-20 years of my life.
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