If my understanding of a mortgage is accurate, in that you (for lack of a better word) sell your house to the bank and buy it back, in monthly payments, then a reverse mortgage would be the bank slowly buying your house out from under you. Ive heard it described as a scam to get the old and financially illiterate people out of their homes so the bank can resale the house at a profit. I have to assume I misunderstood some part of this cuz none of that seems like it should be legal.
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>If my understanding of a mortgage is accurate, in that you (for lack of a better word) sell your house to the bank and buy it back, in monthly payments
No. A mortgage is a loan. You are not selling your home to the bank. When you take out a mortgage to buy a home you are taking out a loan with the property as collateral. You have legal ownership of the home, not the bank. The bank only gets ownership if you fail to make your payments and it begins foreclosure proceedings to claim ownership of the property in leiu of the remaining balance of the loan.
A reverse mortage is….. kinda weird. It’s aimed at people that no longer owe any money towards the home (they paid off the original loan). In a normal mortgage you take out a bulk loan, get a large sum of money, immediately use it to buy the home, and then begin paying back the loan over time. A reverse mortgage is… reversed. You still put the home up as collateral, but you receive the monthly payments and the amount you owe increases over time.
The banks still don’t really want the house, but they do want the loan paid off. Because the balance is rising over time, it often requires the sale of the home to pay. This results in heirs not being able to keep the property and receiving little, if any, of the money from the sale. It can also eat into other assets that would have gone to the heirs in order to pay off the loan if the sale of the home isn’t enough to cover the amount owed.
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