A reverse mortgage is the opposite of a regular mortgage. In a regular mortgage you borrow money and make payments to the bank each month. In a reverse mortgage you borrow the money, and don’t make payments!
Sounds good? There is a catch: Because you are not making any payments, the interest on your mortgage loan continues to increase. By the time you sell your house and repay the mortgage, it is possible that the amount owing on the mortgage is equal to the value of the house. For this reason reverse mortgages are only offered to seniors, on the theory that the time they will be living in their house is less than the time a younger person will stay in their home.
If you have debts, you could use a reverse mortgage for debt consolidation. You take your high interest debts and repay them with a reverse mortgage. This eliminates your high interest debt, but it also means that when you sell your house there may be no equity left over for your children.
Another option is to simply get a conventional mortgage for debt consolidation purposes. You borrow the money, repay your other debts, and then simply make a mortgage payment each month. By doing that your mortgage goes down each month, so you are not continually eroding the equity in your home. Mortgage loan debt consolidation is a better alternative than a reverse mortgage if you have a monthly income, and can support the monthly payments.
Either way, before you get a reverse mortgage or a conventional mortgage, calculate the cost of each alternative so you know exactly what you will be paying; there should be no surprises with a mortgage of any kind.
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