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According to the Yahoo! Finance Glossary, a reverse mortgage allows homeowners who are 62 or older to borrow against their home's equity. The homeowner can theoretically borrow until the principal and interest of the loan reaches the amount of the home equity. As this excellent introductory article by Alan Kopit points out, a reverse mortgage is often a good option for an elderly person who is house-rich but cash-poor. While their house may have accrued significant equity, they may have trouble with living expenses. This loan gives them access to the cash they need. In a reverse mortgage, a borrower doesn't have to repay until they sell their
home, move out permanently, or die. If a borrower dies, the heirs are then responsible for the loan. This is usually paid off by selling the home or by refinancing into a traditional mortgage. This is obviously a unique loan intended for very specific circumstances. It's probably not a good idea for an elderly homeowner who wants to bequeath a home free and clear. But financial necessities may make it a viable option for someone looking to make their sunset years a little more liquid.
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