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If you’re thinking about a reverse mortgage, be prepared to learn a lot about a complicated financial commitment.
With a reverse mortgage, you can convert part of the equity in your home into cash instead of selling, provided you’re at least 62 years old. As long as you continue paying taxes and maintaining the home, you cannot be evicted.
It may sound like the answer to your retirement cash prayers, but complexity and costs are among the factors to consider.
Here’s how it works. Instead of a debt that gets lower as you make payments to the bank for a regular mortgage, a reverse mortgage is the exact opposite.
You draw out funds and interest builds up, while the balance grows larger and you hold less equity in your home.
Keep in mind, you must use the funds to first pay off any existing
Reverse mortgages can be a good option for many homeowners. They let you borrow based on the equity in your home. Instead of paying the bank, the bank pays you — tax-free — with a series of payments via a partial lump sum of money or a line of credit.
Under the right circumstances, a reverse mortgage loan might help an elderly person stay at home when retirement money is running out.
Money Talks News founder Stacy Johnson says reverse mortgages can make sense for certain types of people. But they also come with some big disadvantages. For more on the pros and cons of reverse mortgages, check out “Should I Get a Reverse Mortgage?”
If you read that story and decide a reverse mortgage is not for you, it’s probably time to look at other options. If you prefer taking another route, check these alternatives.