When it comes to the basics of a reverse mortgage, one should remember that this type of mortgage is essentially a loan. A senior homeowner above 62 years of age and having substantial home equity is eligible to borrow against the value of his/her home, and get funds as monthly payments, as a lump sum, or line of credit.
It is different from an ordinary mortgage like a forward mortgage that is typically used for buying a house. In a reverse mortgage, the homeowner does not have to make loan payments. The entire balance is due and liable for payments once the borrower has expired, relocated to another place, or has sold the house.
According to federal regulations, the lenders must structure this loan amount in a way such that it does not overshoot the home value. The borrower, in that case, cannot be held accountable for paying off this difference when his loan balance is found to be greater than his home’s value. The only exception is if there is a sharp fall in the market value, or if the homeowner ends up living a very long life.
How useful is a reverse mortgage
This type of mortgage is beneficial in certain circumstances, like when you must relocate or if you are not worried about leaving behind a house for your successors. You can borrow cash by tapping into your house equity. While the loan may not be as flexible as other standard loans and may have lower rates, it is convenient for unique situations.
How is reverse mortgage different
Just like any regular mortgage, reverse mortgage uses the home as collateral. The difference from other types of loans is that you actually get money instead of having to pay money to the lenders. Secondly, the loan amount grows with time and does not come down, as is the case of ordinary mortgages where the amount decreases when you offer monthly payments. Moreover, this type is available only to people 62 years and above. The good part is that you will not need to pay up unless you die, or leave the house and relocate. So, you have to provide a certification to your lender every year to show that you are still living in that home. Else, the loan amount becomes due for payment.
What amount can you get through a reverse mortgage
How much you are entitled to receive through a reverse mortgage will depend on some factors. For instance, the more equity you own, the higher is the loan amount. The age of younger borrowers will decide how much you will get; while the older ones can take more, you cannot exclude someone younger than you just to receive a high payout. Moreover, if the younger person is not included in this, he/she will need to vacate the house in the event of the older borrower’s death.
How is reverse mortgage made available to you
You could get the money in different ways; the simplest, of course, is to accept a lump sum. This comes with fixed interest rates and the balance will grow with time, as the interest builds up. Alternatively, you could get periodic monthly payments called “tenure payments” that you get for a predetermined period, like 10 years. Finally, you could also ask for the line of credit whereby you can draw money when you need to.