If you are a home owning senior citizen, you have more than likely heard about reverse mortgages more than once or twice. What you most likely have not heard, however, is how these types of mortgages work. Look no further. Here you will find all of the basics about reverse mortgages.
The term “reverse mortgage” is aptly named such, as it functions in an almost completely opposite fashion as a traditional home mortgage. Rather than borrowing against the home itself as collateral, this type of loan is calculated against the equity value of the home in relation to its youngest owner. These funds can be received in installments, as a lump sum, or even as a line of credit. Further, the loan does not have to be repaid until the last surviving homeowner passes away or the home is sold, whichever comes first.
While income and credit worthiness are not factored into eligibility, there are certain other requirements that must be met in order to qualify for this type of mortgage. All listed homeowners must be at least 62 years of age, and the property cannot have more than 65% of its value still mortgaged against it. Proceeds from the mortgage can be used to pay off the balance of a traditional mortgage. Mobile homes must be less than 30 years old and pass FHA inspection to qualify, but most all other home types are eligible.
The borrower cannot outlive the terms of a reverse mortgage. This means that as long as at least one homeowner is maintaining the residence (paying insurance and property taxes) then outstanding balance would not need to be repaid.
Is this right for you? Individual circumstances must always be considered, and it is always best to consult a financial expert before committing to any loan against your home.