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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A mortgage is where the bank pays the seller of the home, and you then pay the bank back over time until you fully own the house.
A reverse mortgage is where you own a house, and a bank pays you a monthly amount on which to live. When you die or move out of the house (ie. into a nursing home), the home gets sold and you have to repay the money paid out (plus interest) from the home sale proceeds.
Because reverse mortgages are typically targeted toward seniors — who own the house outright, and have limited income while sitting on an asset — and are complex financial documents, there is potential for misunderstandings, fraud/taking advantage of somebody who may not comprehend the transaction they’re undertaking, or whether doing so is even necessary. There may be legitimate uses for a reverse mortgage as a means of tapping into money somebody needs on which to live, but there is potential for it to be harmful if not fully understood.
Also, they get a bad rap from children/heirs who are caught by surprise that their inheritance is less than they expected because of their parents’ reverse mortgage debt coming out of any home sale proceeds.
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