Reverse Mortgage Basics

• The basic idea of a reverse mortgage involves the lender paying the homeowner for the equity in their house. If you get a reverse mortgage, you receive monthly payments from the lender and you never have to make a payment back to the lender. If the equity is fully purchased while the homeowner is still alive, the homeowner gets to live in the house until they die without mortgage payments. Upon the homeowners death or the sale of the house, the loan is repaid.
  
  

Life Insurance

• In many cases, the proceeds from a life insurance settlement are used to repay the reverse mortgage. If the homeowner has a life insurance policy and it pays a death benefit to the beneficiary, the beneficiary can then use that money to pay off the mortgage. Any money that is generated from a life insurance policy technically goes to the estate of the deceased to handle debts before the beneficiary gets to keep the rest.
  
  

Selling the House

• If the homeowner does not have any life insurance, the house might have to be sold to repay the mortgage lender. For example, if the house is left to the child of the homeowner, the child would then have to sell it to raise the money to pay off the loan. Any money that is left over from the sale of the house can then be kept by the beneficiary of the estate.
  
  

Refinance

• Another situation that could come up after the death of the owner of the house involves refinancing the existing loan. After the homeowner dies and leaves the house to a beneficiary, that beneficiary could then choose to refinance the existing mortgage with a traditional loan. The loan would then be used to pay off the reverse mortgage and the beneficiary could then move into the house and take full ownership of it.