What is a Reverse Mortgage?

Reverse mortgage loans enable seniors to convert their home’s equity into tax–free cash, while retaining the ownership of their home. Unlike a standard mortgage, there are no monthly payments and repayment of the loan is deferred until the borrower is no longer living in the home. When the loan becomes due it must be paid in full, including interest and financed closing costs. Since no monthly payments are made, the amount owed grows over time and the equity that remains, after selling the home and paying off the loan, grows smaller.
With a reverse mortgage you will NEVER OWE MORE THAN YOUR HOME’S VALUE at the time the loan is repaid.

Additional Information About Reverse Mortgages:

  • Reverse mortgages are becoming more popular as society is living longer and seniors’ lifestyles are changing. Reverse mortgages are a great way to supplement income in your retirement years.
  • Reverse mortgages are similar to equity loans; that is you are borrowing on the equity built into your home over many years of paying it off and as it has appreciated in value over the years. A reverse mortgage borrows the money that you would have gained when you sold your house.
  • A reverse mortgage, or deferred payment loan, can be paid back or left outstanding until your home is sold.
    Seniors consider this type of loan when they have a lot of equity in their home, they do not have any or very little outstanding loans, and they need to access money.
  • The borrower is still able to live in their home whilst they receive a regular stream of income from the loan.
    The borrower determines the duration of the loan.
  • The loan is structured so that you can never owe more than what your home is worth; therefore financially it is very safe. If you decide to sell the house, then any equity left over after you pay the loan remains with you. As you can see it is a type of loan that is relatively risk–free and allows many options for the borrower.
  • In entering into this loan the lender cannot ever claim your house. The lender has no legal rights over your house and cannot foreclose on you, unless you do not keep up with your insurance and taxes.
  • Often it is easier to get a reverse mortgage than other loans, because the equity in your home is guaranteed collateral for the loan. This is especially true for people with a bad credit history, as this record is not used when determining eligibility for a reverse mortgage.

Reverse Mortgages

If you are studying the mortgage industry for any length of time you probably come across with known as the reverse mortgage. Essentially what reverse mortgage is is a loan that allows seniors to own their own home to use the equity that is in their home and turn it into cash. Something to consider is that there is no payment plan or monthly payments so long as the person in question remains in the home.

It may be helpful to consider a reverse mortgage as another type of equity loan. This means that you are essentially borrowing against the value of your home as a way to perhaps pay off debts or to simply supplement your pension or other income. Something to think about here is that while it is different, when you leave the home you will have to repay the loan in full.

That being said however unlike a typical mortgage, a reverse mortgage allows the borrower a lot of control. For instance, they can set the duration of the loan, allowing them the freedom to know exactly when they want to pay the loan off and be able to live their lives without work. Something else to consider is that this type of loan is never going to be worth more than the total value of your home. So there is never a concern over paying off a mortgage that is worth twice what the house is due to the real estate industry.

Benefits Of A Reverse Mortgage:

  • Easy to qualify: A borrower must be at least 62 years old, own a home with accumulated equity, and use the home as a permanent residence. That is all! The borrower is not asked about their income or credit information. Almost all house types are accepted, with some exceptions concerning mobile homes.
  • Up to 3 individuals can make the deal: One person, a couple, or three individuals can be borrowers. Because of the flexibility of reverse mortgages, borrowers do not have to be relatives. In this situation, the only requirement is that they all are owners and at least one of them uses the house as a permanent residence.
  • Informational session from a third party: Every senior, who applies for a reverse mortgage, must meet with a federal counselor. This compulsory meeting is very useful to the borrower because the counselor is an independent expert and not in the service of the lender. The counselor works with you to customize the loan.
  • Pay off a traditional mortgage: If you have a traditional mortgage, you can pay it off with a reverse mortgage. Once the traditional mortgage is paid off, you will have no more monthly mortgage bills, but instead receive payments from the reverse mortgage loan. That money comes from the selling price of the house. If the selling price does not cover the costs and the loan capital, the compulsory mortgage insurance will pay the missing portion.
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