A red hot loan package that is getting a lot of attention these days is the reverse mortgage. Common question arise regarding the loan, so let’s take a closer look.

The reverse mortgage is exactly what it sounds like. Instead of you making payments to a lender, the lender makes payments to you. While that may sound fantastic, the similarities pretty much end there. As payments are made to you, more and more of the equity in your home is converted into debt. That debt grows at an interest rate that is typically one to two points higher than a normal mortgage or refinance. This can result in the equity running out much quicker than expected.

The number one question regarding reverse mortgages has to do with equity. Specifically, what happens if the equity is all used up before the borrower dies or the home is sold? Do you lose the home, get foreclosed on or what? In the past, the ugly answer is that you would lose the home. Since senior citizens sitting on a curb did not go over well, the government stepped in. Most plans now allow you to stay in the home even if the equity is used up entirely. Some plans even call for payments to continue to be made to you. Obviously, you need to read the fine print on the loan to figure this out.

Another common question is how big will the monthly payments made by the lender be? There is no pat answer. There are a number of factors that go into the determination. These include the amount of equity in your home, the interest rate charged on the loan, the costs and the fees. Finally, the biggest factor is the particular plan you choose. You will have a choice of different options and can predict the numbers accordingly.

What happens when I die? The reverse mortgage is handled no different than any of your other assets. It becomes due. This means your heirs must either pay it off or sell the property. If they sell the property, the reverse mortgage balance is paid off. Any remaining money is then distributed to the heirs pursuant to your trust, will or other court order.

In some cases, the reverse mortgage makes sense. In others, it does not. The only way to make a determination is to discuss the details with a financial professional.