A reverse mortgage is rather like selling your home or property - or part of it - and using the proceeds to fund your lifestyle. The only difference is that you still get to live in the house. What happens is that the bank gives you an amount of money that is equivalent to the value of your home (or less), and when you die the home is sold to repay the money.

What this means is that there will be nothing left for the children to inherit. Since many children are now well educated and earning more than their parents ever did, this does not worry them. However, you need to be careful that you don’t leave them a debt that must be paid off.

Banks and institutions that provide various reverse mortgage products do not always supply enough information about them. It the applicants are not very careful to avoid a negative equity guarantee, they may unintentionally burden their heirs with a debt that must be repaid.

This happens if the house does not sell for enough to cover the amount of equity released. It’s most likely to happen in times of real estate slump where housing prices fall considerably.

    Posted in Mortgage from Investor on 3. Feb. 2008