A reverse mortgage is a way for seniors over the age of sixty-two to supplement their retirement income by borrowing against the equity in their home.  Reverse Mortgages are referred to as Reverse Mortgages because the act in reverse. Instead of making payments to the lender, the homeowner receives monthly payments from the lender.  Unlike traditional mortgages the insurance and fees associated with the mortgage are subtracted from the amount that is to be paid to the borrower. The loan is satisfied when the borrower passes on, sells the home, or no longer uses the home as their primary residence.

Payments made on a reverse mortgage are not subject to taxation and will not affect Social Security or Medicare benefits. The loan must be satisfied if the home is no longer the primary residence of the borrowed. Potential borrowers should make sure they understand what constitutes a primary residence. There have been cases where people have had long hospital or assisted care stays only to discover that the bank has sold their home while they were convalescing.

There are a few things to remember when a homeowner considers borrowing against their home equity. There will be an origination fee for most reverse mortgages. This can vary from lender to lender. The amount a homeowner owes increases every month. Interest is charged on the outstanding balance of the loan, so the homeowner will be subject to compound interest. Most reverse mortgages have a variable interest rate, thought some are fixed rate it is unusual.  These types of mortgages can use up all of a homeowner’s equity in their home leaving little or nothing for their heirs.  Homeowners still retail the title to their home and as such are still responsible for all property taxes and insurance.

While this type of mortgage can be very helpful to those senior’s on a fixed income it pays to do research before committing. A reverse mortgage can be helpful, but they can also be dangerous.