A reverse mortgage is a loan that a borrower will make with a lender. This is a type of loan that uses the home as collateral and the lender will loan at least more than the home’s value. This is what separates it from a traditional mortgage because with this type of loan, the lender will loan up to 95% of the home’s value.

In a reverse mortgage, the lender will not be repaid during the course of the loan, but when the last surviving homeowner has moved to a new permanent residence or has passed away. Therefore age plays a crucial role into home much money the borrower is eligible to receive. A 90 year old can receive more money out a reverse mortgage than a 65 year old can.

Reverse Mortgage

• A 73 year old man woman a $250,000 property
• She is eligible for $160,000 from a reverse mortgage
• She wants to immediately use $40,000 and then $5,000 per year
• Ten years later she passes away and her heirs inherit the property
• Her heirs do not want his property and plans to sell it after her death
• The homeowner spent a total of $90,000 from the reverse mortgage
• The total accumulated interest of the loan is $46,045
• The estate can sell the home for $250,000
• The estate can use the money to repay the reverse mortgage balance of $136,045
• The estate then inherits the net amount $113,955