Finance
A reverse mortgage allows homeowners aged 62 or older to:
ATransfer their mortgage to a younger relative
BBorrow against the equity in their home, with no monthly payments required while they live there✓ Correct
CPurchase a second home without a down payment
DRefinance at a reduced interest rate
Explanation
A reverse mortgage (most commonly the FHA Home Equity Conversion Mortgage, or HECM) allows homeowners 62+ to borrow against their home equity with no required monthly mortgage payments. The loan is repaid when the borrower moves, sells, or passes away.
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Key Terms to Know
Debt-to-Income Ratio (DTI)
A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
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