Reverse Mortgage Information

With senior homeowners, a popular yet complex home mortgage loan has been the reverse mortgage. The reverse mortgage can potentially offer great benefits for those qualifying. However, each individual homeowner has his/her intentions, and so the reverse mortgage will not be right for everyone.

What is the reverse mortgage? In most home mortgage loans, the homeowner(s) repays a loan to build up home equity and reduce debt. However, the reverse mortgage works in “reverse.” With the reverse mortgage, debt builds up and home equity decreases. It is a home loan for which the homeowner(s) will not have repay monthly as long as they occupy the home. The reverse mortgage is a distinct type of home mortgage loan that enables homeowners to convert some of their home equity by taking it out as cash without the need to move or make monthly payments, and the loan is repaid from the home equity upon selling, moving, or death. So, the lender sends the homeowner the money, and you have no need to make repayments. Therefore, the debt owed increases more as more cash is withdrawn and more interest is added to the loan balance; the equity will shrink as a result of the increase in debt with the exception that the home’s value is growing at a rapid rate, which would cause the equity to increase.

There are a number of way in which a homeowner can receive their payments from the lender as a result of their reverse mortgage. These are the options for which to receive payment of home equity:

To qualify for a reverse mortgage, one must be a homeowner who is 62 years old or greater. The home must be paid off or at least have a minimal balance owed on the mortgage that can be paid in entirety during the closing process with reverse loan proceeds. The borrower(s) must also live in the home. Only certain homes are eligible for be approved for the reverse mortgage loan, which include eligible single family homes, approved condominiums, town homes, detached houses, and some manufactured homes. Also, previous to qualifying for a reverse mortgage, counseling is mandatory in order to educate you about the reverse mortgage and answer your questions, and offer any alternative choices that may be right for you depending on your scenario. Does a reverse mortgage peak your interest? Talk to a counselor or mortgage broker to help you weigh the pros and cons and help you decide what is right for you!