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Q: We retired a few years back, and because of some changes in our investments we find that we’re a little more pinched financially than we expected we would be. We’d like to be able to relax and enjoy our retirement without worrying so much. We do have a lot of equity in our home, and our neighbor recently explained that he’s taken a reverse mortgage to have more access to day-to-day funds. What is a reverse mortgage? How does a reverse mortgage work?
A: Congratulations on your retirement, and on looking for creative solutions to your financial situation. The answer to the question of “What is a reverse mortgage?” is a little complicated. A reverse mortgage takes the concept of a home purchase mortgage, where borrowers offer up their to-be-purchased home as collateral for a sum of money they use to buy it, then immediately begin repaying the mortgage until they own the house fully. Reverse mortgages begin with a homeowner who already either owns the home outright or has a significant amount of equity in the home, who offers up their home as collateral for a sum of money they can use for whatever they need—renovations, outstanding medical bills, groceries, a cruise vacation—with the understanding that the loan need not be repaid until they sell the home, move out, or pass away. At that time, either the heirs or the estate will have the option to turn the property over to the lender in repayment, sell the home to pay off the balance…
