The reverse mortgage is a type of refinance, but it is better than the standard refinance. First of all, the reverse mortgage does not require any monthly payments from the borrower. This is often a big problem for many older refinance borrowers, who need the cash-out but cannot afford the monthly payment that will be required.
The reverse mortgage does not require any monthly payments from the borrower. The lender's disbursements to the borrower is usually for a preset period—anywhere from one month to 30 years. If the borrower is still alive after the lender's disbursement ends, the borrower still does not have to make any payments. The lender normally does not expect repayment of the reverse mortgage loan until the property is sold or the borrower dies.
Once the borrower dies, the lender will sell the property to pay off the reverse mortgage balance, which will include all the unpaid interest on the loan. If there is any surplus, that extra cash will normally be provided to the former borrower's inheritors.
Most reverse mortgage lenders will also give the borrower's inheritors the chance to keep the house with a simple refinance of the existing mortgage.
It is important that married couples are recorded as co-borrowers on a reverse mortgage loan. Otherwise, if only one of spouses is listed as a borrower and that spouse dies, the surviving spouse could be forced to pay off the loan or sell the house.
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