A reverse mortgage allows seniors to borrow a portion of their home equity in cash. They can use that cash for living expenses, in-home nursing care, home repairs, or to pay off an underlying first mortgage. No repayment is due until the loan term is over. Lenders make their money on the back end from the interest accrued.
Who qualifies for a reverse mortgage? You must be a senior and have equity in your home. To see how much you could borrow, use a reverse mortgage calculator and discuss with a qualified reverse mortgage lender. (Search online & ask trusted friends.)
What happens when the owner dies in the middle of the reverse mortgage term? If the owner was taking monthly payments, then the amount paid out becomes due (paid back to the lender). If the owner took it all as a lump sum, then the entire amount is due. Heirs have a limited time to pay back. They can sell the house, pay the loan off in cash, or possibly refinance. Heirs should discuss options and timeframes with the lender that holds the loan. If the property sells for more than the loan amount, the heirs keep the remainder.
What happens if the owner outlives the term of the reverse mortgage and wants to stay in their home? When the loan term is over, the loan becomes due. The owner will need to sell or refinance or otherwise come up with cash to pay the loan back. You should have a plan in place before getting a reverse mortgage. You may live longer than you expect to.
Is it worth it? It can be worth it, if you have no other options for getting the cash you need to stay in your home. Keep these facts in mind: 1) The interest rate could be higher than prevailing rates, meaning that at the end of the term, you or your heirs might owe more than expected. 2) If property values fall, you may end up with less cash after paying back your loan (if you outlive it). Both are big “ifs” so do your research!
For official information about reverse mortgages see these resources: In the US | In Canada.