Reverse mortgages may be a good option for people who are “house-rich and cash-poor,” those with lots of home equity who could use more income during retirement, Investopedia writes in a recent article.
When people are younger and think of cashing in on their home equity, they imagine renting or selling their house. But for homeowners age 62 or older, there’s a third option: a reverse mortgage.
Different from forward mortgages — in which over time, debt decreases and home equity increases — as a reverse mortgage progresses, debt increases while home equity decreases.
While there are several different types of reverse mortgages, the home equity conversion mortgage (HECM) is the most common. HECMs are issued by private banks and insured by the Federal Housing Administration.
Non-HECM loans are also available from various lending institutions. These loans offer loan amounts that are higher than HECM loans. However, that potential benefit comes at a cost: non-HECM mortgages are not federally insured and can be considerably more expensive than HECM loans.
“Like other loan products, reverse mortgages also have a number of upfront and ongoing fees and costs that should be evaluated when deciding if this choice makes financial sense for you,” Investopedia writes.
Read the full Investopedia article here.
Written by Emily Study