What is the primary function of a reverse mortgage?

What is the primary function of a reverse mortgage?

• A. To provide homeowners with a loan to purchase another property
• B. To allow borrowers to refinance their existing mortgage
• C. To enable homeowners to borrow against their equity without immediate repayment
• D. To replace a traditional mortgage with a fixed interest loan

Answer: (C)

The primary function of a reverse mortgage is to enable homeowners to borrow against their equity without immediate repayment. This type of loan is specifically designed for older homeowners, typically aged 62 and over, allowing them to convert a portion of their home equity into cash. Unlike traditional mortgages where borrowers make monthly payments, a reverse mortgage does not require repayment until the borrower sells the home, moves out, or passes away. This loan is particularly beneficial for retirees who may need additional income for living expenses. It provides funds while allowing the borrower to continue living in their home without the burden of monthly mortgage payments, thus improving their financial flexibility in retirement. In comparison to the other options, a reverse mortgage is not intended for purchasing another property, refinancing existing mortgages, or replacing traditional loans with fixed interest loans. Each of those scenarios involves different objectives and repayment structures that do not align with the unique characteristics of a reverse mortgage.

The primary function of a reverse mortgage is to enable homeowners to borrow against their equity without immediate repayment. This type of loan is specifically designed for older homeowners, typically aged 62 and over, allowing them to convert a portion of their home equity into cash. Unlike traditional mortgages where borrowers make monthly payments, a reverse mortgage does not require repayment until the borrower sells the home, moves out, or passes away.

This loan is particularly beneficial for retirees who may need additional income for living expenses. It provides funds while allowing the borrower to continue living in their home without the burden of monthly mortgage payments, thus improving their financial flexibility in retirement.

In comparison to the other options, a reverse mortgage is not intended for purchasing another property, refinancing existing mortgages, or replacing traditional loans with fixed interest loans. Each of those scenarios involves different objectives and repayment structures that do not align with the unique characteristics of a reverse mortgage.