A reverse mortgage is a relatively new way to borrow money for a home loan. The process has received mixed reviews. While some people think of reverse mortgage as a godsend and take advantage of it, others consider it to be way too risky.

What is a Reverse Mortgage?

A reverse mortgage will provide you with home equity in a series of payments or a lump sum amount. It is a good option for people whose largest asset is their home and cannot afford any monthly payments.

What are the Eligibility Criteria?

You are eligible for a reverse mortgage only if:

• You are more than 60 years of age.
• You own a home.

In other words, a reverse mortgage is generally for those elderly people who are leading a retired life with pensions as their only source of income.

How does a Reverse Mortgage Work?

A reverse mortgage operates in a very different manner from typical mortgages. There is no down payment, no payment schedule, and no time period; but there a few conditions which must be followed.

When you get the money, you can do whatever you want with it. There are no restrictions as such on how it can be spent. You are also not obliged to make any monthly payments. All this is true as long as you do not sell your house. Your principal amount will remain the same throughout, but an interest will be accumulated on the loan at a certain rate. This rate is generally 10%.

However, if you pass away, the house must be sold. The mortgage amount then must be paid from the money received. This includes both the principal amount and the interest generated on it. Even if the house is sold before your death, the money must be paid in this manner.

Should you Opt for a Reverse Mortgage or Not?

Reverse mortgages are the key to financial freedom without the burden of monthly payments. However, the decision to avail a reverse mortgage or not depends on your present situation. If you live in an upscale or modernized locality, the value of your home will be quite high. Even if you house is sold, the loan can be repaid and your family will also get benefits. So a reverse mortgage in these circumstances can be a good choice.

However, if your house is not marked by a high price, then think thrice before you sign up for a reverse mortgage.