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Frequently Asked Questions

How does a reverse mortgage work?

A reverse mortgage is a type of guaranteed income product that allows homeowners to receive monthly payments from a lender. This financial arrangement is particularly beneficial for retirees as it provides a consistent income stream for the remainder of their lives, similar to a pension plan. The process works by the lender providing monthly payments to the homeowner, which are then repaid upon the homeowner's death. If the estate fails to repay the money received, the lender takes possession of the house. The reverse mortgage system is designed to help retirees maintain their standard of living by providing a steady income that isn't dependent on the fluctuations of the financial market. This removes the risk of an individual outliving their assets and makes budgeting simpler as the income amount is known in advance. However, like any financial product, a reverse mortgage has its drawbacks. For instance, the homeowner is essentially locked into a low rate of return and there may be high hidden costs associated with the product. Additionally, once the decision to take a reverse mortgage is made, it may not be possible to reverse it. Lastly, a reverse mortgage may not be the best option for individuals who wish to leave a bequest to their heirs, as the lender takes possession of the house if the loan is not repaid.
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