I'm just wondering. I keep seeing these commercials for reverse mortgages, but I'm curious as to how they work and when they would be beneficial to someone.
I'm not exactly sure of the mechanics, but I think you basically draw down the equity of your house on a monthly basis to supplement your income. I'm not sure how fees are charged though.
Start with a house that is totally paid off. Basically, you sell your house back to the bank. They appraise it and offer you most of what it's worth in cash. You can take it as monthly payments or a lump sum. When you die, your executor can either sell the house and use the profits to pay back whatever you took, or you can just hand the keys over to the bank and let them deal with it.
My grandmother did this in 2006. Her SS payments and my grandfather's pension were enough for her monthly expenses, but when she needed a new roof, she took the reverse mortgage. She opted for the lump sum and put it all in a savings account. She used $10K for the roof and barely touched the rest. Because she took it all, it was her cash to do with as she pleased, and my mom and aunts inherited it all when she died in August. They turned the keys over to the bank because, as you might imagine, the house is worth significantly less now that when it was appraised in 2006. She really came out ahead because of the housing market crisis.
I think you have to be 62 at least to take out a reverse mortgage.