People who want to buy a home often save very hard for it, cutting back on spending and making sacrifices so they can pay off their mortgage and save for retirement. When they retire, they can live in their dream home without any debt. The only problem with this for many retirees is that they live on a fixed income, which is often not very big.
You could get a reverse mortgage, which is a loan against your home that gives you money while you still live there. Depending on your age, you can usually borrow between 10 and 40% of the value of your home. As long as you live in your home, you don't have to pay back a reverse mortgage loan, and you'll never owe more than your home is worth.
Two things make this loan different from a traditional mortgage. For a traditional mortgage, the bank looks at your income to see how much you can pay back each month. There are no monthly payments with a reverse mortgage. Most loans are hard to get out of if you don't pay back what you owe. When you get a reverse mortgage, you don't have to pay anything back. So, as you keep getting cash advances and interest is added to what you owe, the amount you owe keeps going up. This is why a reverse mortgage is sometimes called a "rising debt, falling equity" loan. As the amount you owe (your debt) goes up, the value of your home minus your debt (your equity) goes down.
You have two ways to get money from your reverse mortgage. You can get the loan and use the money to buy an annuity. In return, this annuity will give you money until the day you die. The second choice is to get money from your reverse mortgage company every month. Here, all you have to do to make money is increase the size of your loan every month.
One big problem with this is that you still owe money on your house. At the end of the loan, you will owe the amount of the loan plus any interest that has been added. All of the interest can add up to a lot of cash.
Talk to your family about your options before you try to get a reverse mortgage. Remember that getting a reverse mortgage will make your estate smaller.
