A reverse mortgage is a type of loan, specifically for borrowers ages 62 and older, that allows a borrower to use the equity in her home to refinance a current mortgage or pull cash out for expenses. Instead of the borrower paying the mortgage company, the mortgage company pays the borrower.

Benefits of a Reverse Mortgage

Yes, a borrower can use a reverse mortgage to pay off all existing debt tied to the residence. This is one of the best ways that a borrower on limited income can utilize the reverse mortgage product. If the borrower has enough equity in the home to qualify for the reverse mortgage, the new lender will pay off the old lender in full. Then, the borrower is not required to make a single payment on the mortgage. Once he is deceased and the property is sold, the debt is paid in full and the heirs receive any leftover equity as profit. If there is more equity left in the home once the original mortgage is paid in full and the borrower would like to exercise this option, he may pull additional funds out of the equity for living expenses. These additional funds can be pulled out in one lump sum, in monthly payments, or the borrower can attach a line of credit to the home and use that in lieu of monthly payments. This product is a great option for older borrowers who are looking to maintain their financial independence and have a large amount of equity in the home. However, it is more expensive to get a reverse mortgage than a regular mortgage and the borrower must realize that a percentage of the equity of the home will be used to pay those fees. Additionally, the percentage of equity that the borrower will be able to use varies based on the age of the homeowner and the current traditional mortgage balance.

Source:

Hud.gov: Top Ten Things to Know if You're Interested in a Reverse Mortgage

AARP.org: Reverse Mortgages