How a Reverse Mortgage Works
Unlike a traditional mortgage where you make monthly payments to the lender, in a reverse mortgage, the lender makes payments to you (or you take a lump sum). The interest is added to the loan balance, which is repaid when the home is sold or the owner passes away.
Pros and Cons
- Pros: No monthly mortgage payments, stay in your home, tax-free proceeds.
- Cons: Rising loan balance, decreasing equity for heirs, high closing costs, must still pay property taxes and insurance.