June 01, 2014 EXP

Protecting Borrowers from the Pitfalls of Reverse Mortgages

Elliot Wong, Ingrid Evans

A reverse mortgage is a unique financial product that is only available to elderly borrowers. Like a traditional loan, it allows a borrower to access money immediately, using the equity in his or her home. Unlike a traditional mortgage, however, a reverse mortgage defers payment of the loan until after the borrower dies, sells, or moves out of his or her home. This loan structure was specifically designed to fit the needs of a very specific borrower: an elderly homeowner who (1) had few liquid assets, (2) was committed to aging in his or her current home, and (3) did not intend to pass the home to a beneficiary as part of his or her estate. For these borrowers, this type of loan allows them to access the equity in their homes for the purpose of supplementing their income while living there without having to worry about a repayment schedule.

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