Reverse Mortgage Loan

This article will explain what a reverse mortgage is, the advantages and disadvantages of this type of loan, and help you understand if a reverse mortgage is right for you.

A reverse mortgage allows people over the age of 62 years to convert part of the equity they have in their home into tax free income without having to sell or take out a monthly conventional mortgage.

How Does A Reverse Mortgage Work?

First and foremost, reverse mortgages are available to senior citizens ages 62 and above in which they are given a loan based on the equity of their home. In other words you receive payments based on what your house is worth.

For example, if you have completely paid off your house that is worth $400,000, then you can get a reverse mortgage for that same amount of $400,000. So instead of making payments to a lender you are receiving payments; hence the term “reverse.” This is the main difference between a traditional and reverse mortgage.

Borrowers of reverse mortgages must own their primary residence and continue to pay property taxes and have homeowner’s insurance on the house, in addition to keeping the house maintained.

If something happens to the initial borrower, the loan is left to their heir(s); however, the heir(s) will never owe more than the value of the borrowers house, even if the amount they borrowed exceeds the value of his or her’s house. If the amount owed is less than the value of the borrower’s house, the additional equity goes to the heirs instead of the lenders.

Borrowers can receive payments in one giant lump sum or more traditional monthly payments. At some point though you will have to cover your reverse mortgage. This can either be done by selling your home or paying back the amount borrowed through your own private money.

Typical interest rate and administration fees still apply to reverse mortgages.

Basic features of a reverse mortgages:

• The borrower must be a homeowner of at least 62 years of age.
• The home owner never gives up ownership/title to the home.
• The home owner(s) must continue to pay all property taxes and insurance on the home while maintaining the property.

With reverse mortgages you can never owe more than what your house is worth. This protects you in the event of a housing slump.

What Steps Are Needed Take Out A Reverse Mortgage

The Internet is a great place to start researching possible solutions for your reverse mortgage; however, you can always utilize the services of a mortgage broker or lender to help you understand the requirements and where you can find the best rates for a reverse mortgage.