what is reverse mortgage
What is reverse mortgage: It’s just what it’s name implies, a mortgage in reverse. With a traditional home mortgage the borrower pays the bank and gains equity with each mortgage payment. This is known as a forward mortgage. With a reverse mortgage the bank pays the borrower from the equity stored up in the property.
Note that the more money a borrower takes with a reverse mortgage the less equity they have remaining in the property. For most this does not present a problem. After all it’s your money and the only other way to get it out of the house is to sell the residence or do a home equity loan.
To qualify for this special loan you must be at least 62 years old, a property owner, and the subject property must be your primary residence. There are no income or credit requirements.
The amount of money a senior can receive is based on three things.
- The age of the youngest borrower – the older you are the more you can get
- The value of the property – the more your home is worth the more you can get
- The interest rate – the lower the interest rate on the loan the more you’ll receive
To get a reverse mortgage you do not have to own your home outright, however the more equity you have in your home the more you can get out.
Pros and cons of a reverse mortgage:
Pros – access home equity without selling your home, no monthly payment required, easy to qualify for, can’t lose your home if you pay taxes and keep it in reasonable living condition.
Cons – the more money you actually use the less equity is left in the property
The debt you accumulate on a reverse equity loan is due when the last surviving borrower departs the home for good, either decides to move or dies.
At that time the home passes to your heirs and whatever is owed to the lender must be paid. Whoever inherits the home has three choices to pay the debt.
- If they have the cash they can choose to pay it outright and keep the home
- They can retain ownership of the home by taking a mortgage against the home for the balance due, or
- Sell the property – and keep the difference between the selling price and what’s owed.
Either way the thing to remember is that at no time does the bank take your house. The title always remains with the borrower or their heirs.
The only way a senior can lose their home with a reverse mortgage is if they fail to pay property taxes or fail to keep the home in a reasonable living condition.
If you’d like to have a certified reverse mortgage specialist contact you complete the reverse mortgage quote form.
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