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Oct 25
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A reverse mortgage is a loan available to senior citizens above age 62. What happens is that the equity in a home is used to give a loan. The loan provides the borrower with an income stream. The loan amount paid out in a steady stream of payments or in a lump sum like an annuity.
What happens is that the Senior citizen gets an income to live on in his sunset years while the bank now owns the home. The reality of the situation will come clear when the borrower dies. The beneficiaries of the deceased estate will only be entitled to any equity that is left after all of the cash from the deceased’s estate has been used to pay off the mortgage. Sounds scary!
Risk & Disadvantage Of Reverse Mortgage
- Reverse mortgage is expensive because a borrower has to pay high upfront costs e.g. origination fees, mortgage insurance, appraisal fees & attorney fees.
- The borrower loses full ownership of their home.
- The family is left with a mess to deal with when the borrower dies.