How your Loan Works
Rising debt, falling equity
The monthly payments you made to pay off your original mortgage generally served a common purpose - to decrease your debt and increase your equity. The payments you receive with a reverse mortgage have exactly the opposite effect - they increase your debt and decrease your equity.
Why would I increase my debt?
Increasing your debt may not seem like a wise financial strategy at first-indeed, it isn't for everyone-but your reverse mortgage debt is different from most other kinds. Usually, taking out a loan means you must commit to repay it using money that you will earn in the future-in other words, using money that isn't guaranteed.
When you take out a reverse mortgage, on the other hand, the equity you already have in your home is used to pay off the loan. That's why a reverse mortgage is known as a non-recourse loan, which means that your home is the lender's only recourse to collect on the debt. None of your other assets are affected.
Only when you sell or move from your home, or when you pass away, does the debt become due. Generally, it's payable from the proceeds from the sale of your home.
If your home's value is less than the outstanding balance, you will not owe a single dollar of the difference. On the other hand, if you sell the home for more than the loan balance at that time, you or your heirs will keep the difference.
How Much Can I Borrow?
The maximum loan amount for a reverse mortgage is based primarily on three factors: the age of the youngest borrower, the value of the home, and the current interest rate. Our Reverse Mortgage Calculator can estimate the amount you could receive from a reverse mortgage.
Next Topic: Important Considerations
Reverse Mortgage Basics!
Instead of paying your lender, your lender pays you.
Instead of reducing your debt as the loan term progresses, you increase it.
Instead of turning your income into equity, you turn your equity into income.