How does Reverse mortgage work?

6 Replies

how does the bank make money off this?

A quick Google search revealed this from 'Investopedia':

[In a reverse mortgage,] instead of making monthly payments to a lender, a lender makes payments to you, based on a percentage of the value in your home. You choose whether the cash is paid as a single lump sum, a regular monthly cash advance, a line of credit, or a combination of these methods.

Throughout the life of the reverse mortgage, you keep title to your home, which acts as security for the loan. You are charged interest only on the proceeds you receive, and both fixed and variable interest rates are available. Most reverse mortgages are variable interest rate loans tied to short-term indexes, such as the 1-Year Treasury Bill or the London Interbank Offered Rate (LIBOR), plus a margin that can add an extra one to three percentage points. Any interest compounds over the life of the reverse mortgage until repayment occurs.

As the loan progresses, your debt increases while your home equity decreases. When you move, sell the home or pass away, the lender sells the home to recover the money that was paid out to you. After lender fees are paid, any equity left in the home goes to you or your heirs. If you receive more payments than your home is worth (if you “outlive” the loan), you will never owe more than the value of the home, according to the FTC.

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@Account Closed

 So basically when the person dies the lender sells the house and is playing real estate.  i thought banks hated real estate, yet they are in the game of it.  hm

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@Jack Rengold

  many times heir take possession and liquidate the bank is the lender not the owner

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Originally posted by @Jack Rengold :

@Account Closed

...  i thought banks hated real estate, yet they are in the game of it...

 Who told you banks hated real estate? They usually are in business to lend and real estate lending for most banks typically is the largest source of revenue.

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