Connecticut homeowners over the age of 62 who are facing unexpected financial difficulties or simply need some extra cash may consider a reverse mortgage. Most homeowners know that a regular mortgage involves making monthly payments to a lender for a certain time, such as 20 or 30 years. After the last payment is made, the homeowner owns their home outright.
How a reverse mortgage works
A reverse mortgage is different from a regular mortgage because in a reverse mortgage, the lender pays the homeowner from the equity already built up in the home. For example, if a homeowner has built up $50,000 of equity in their home through making mortgage payments, a reverse mortgage would allow them to borrow from that $50,000 in the form of cash.
The cash a homeowner receives from a reverse mortgage does not have to be paid back, provided the homeowner keeps living in the home. If the home is sold or the owner passes away, the cash must be paid back to the lender. Therefore, if you are not sure if you plan to stay in your home, or if you are concerned that your heirs may get stuck paying the amount back if you pass away, a reverse mortgage may not be for you.
There are some other things to consider when thinking about a reverse mortgage. There will typically be fees and costs, like any other real estate transaction. These may include an origination fee, servicing fees added on to the original mortgage and closing costs.
Additionally, some reverse mortgages have variable interest rates. Although a fixed rate may be available, you may not be allowed to receive as much if you choose a fixed rate. Interest on reverse mortgages is not taxable, and interest is added onto the original mortgage balance, increasing the overall amount eventually paid.
The reverse mortgage process can be complicated and confusing. If you are wondering if a reverse mortgage is the right choice for you, having advice and guidance from a legal professional who can analyze your situation and help you through each step of the process is crucial.