What is a reverse mortgage?
A reverse mortgage is a loan against the equity that is in your house. There are no credit or income requirements and a person 62 years of age or older who qualifies may use the reverse mortgage money for any expenses. But if they have a mortgage on the property, it must be paid off with the proceeds and, depending on qualifications, personal funds. So when you ask “Can I use a reverse mortgage to pay an existing mortgage?”, the answer is definitely yes, if you qualify for enough to pay it off.
So if I qualify for enough to pay off my mortgage, what happens?
Say a person has a mortgage with $150,000 left on it and they’re paying $750 a month, and this person chooses to have a reverse mortgage and qualifies for $200,000. You can use a reverse mortgage to pay off an existing mortgage of $150,000, leaving a balance of $50,000 which would be given to the homeowner which could be used for any expenses, to pay off credit cards or other expenses.
What if I don’t qualify for the full amount?
On the other hand, say the same person is only eligible for $125,000 worth of equity. In this case, the entire mortgage must be paid off in order to qualify for the reverse mortgage, so the homeowner would have to come up with $25,000 of money from personal funds in order to qualify for the reverse mortgage. You could use a reverse mortgage to pay down an existing mortgage, and once you paid the $25,000 from other funds, there would no longer be a payment of $750 a month to pay to the bank.
In conclusion, be sure you read the documentation and ask questions before signing up for any kind of loan. A reverse mortgage is not free money. If you move out or go to a nursing home, the sale of the house is used to pay off the reverse mortgage. Make sure you read all the fine print and don’t let the banker pressure you into a loan with terms that you can’t pay.
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