How do reverse mortgages work, in simple terms?
I must be stupid or something, but I've been reading about reverse mortgages and I just can't seem to understand the concept.
My boyfriend's dad just decided to do it. He has some mental illnesses and tends to get taken advantage of, particularly in regards to money. Unfortunately his wife passed away last year. Essentially, what is a reverse mortgage and what does that mean for my boyfriend (in simple terms, please)? Why are you given money? What's in it for the lender? Will the house still go to my boyfriend if his father passes away? Does this cause you to go further into debt?
I believe he bought the house 25 years ago for $80,000. I estimate it's worth $120,000 now. Pretending he still owes $30,000 for it... what does that situation look like?
- kemperkLv 71 decade agoFavorite Answer
My peers are partly correct.
a Reverse mortgage is exactly what it sounds like; instead of the
borrower making monthly payments to the lender after getting
a lump sum payment......the lender lends the borrower a fixed monthly payment. NO payment is due to the lender till the
end of the mortgage when either.......
the borrower has died and the estate does not want the house
so the lender forecloses.
or..........the insurance if there is any, pays back the
lender and the house is debt free to the estate.
or, if the borrower lives long enough, at the end of the
mortgage life [loan], he needs to re-finance
the home so that the lender is paid back.Source(s): RE broker
- Anonymous1 decade ago
I'd never do it.
It's almost always better to sell the house and move to an apartment or in with a relative. At least they you know what you sold the house for and how much money you got.
If you can't afford to live in the house, you can't afford to stay with the reverse mortgage.
Many of these mortgages give up very little money after fees and interest. That $90K of equity *might* get him a loan of $50K.
If you get sick and need to move, you trigger the loan to be repaid.
- wizjpLv 71 decade ago
Looks like he'll draw funds from the reverse mortgage till he dies or until he hits the equity limit; then when he passes, the estate can pay off the mortgage, or lose the house to the lender.
- ?Lv 71 decade ago
Using your numbers the house has 90k in equity. A reverse mortgage pays the owner a monthly sum, till the 90k is spent. The lender then owns the house.
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- kateLv 71 decade ago
Not sure what the lending specifics are for him ,
That is NOT simple .
But simply , reverse mortgages sell the property back to the bank who allow the owner to stay in the home until they pass away .
The $$ is paid out in monthly checks .
No the house will NOT go to your boyfriend ,
Reverse mortgage sells the house to the bank .
If BF wants it , He will have to buy it from the bank .
- knowitallLv 71 decade ago
A reverse mortgage should be used only as a last resort - such as the owner will be homeless and starve to death without getting one.