Reverse Mortgages
A reverse mortgage is a way to take advantage of the equity you have in your home. Instead of making monthly payments to the lending institution, the lender accumulates home equity over time. With this type of mortgage, your equity decreases over time and the amount of debt increases. It’s the reverse of a traditional mortgage where you make monthly payments. In a traditional mortgage your equity increases and your debt decreases over time.
Generally, reverse mortgages are available only to people 62 year old or older and who own their home. There is no income requirement for a reverse mortgage because there is no monthly payment. There is usually a provision that the lender can’t sell your home until after you move or die. If you fail to maintain your property or if you don’t pay property taxes, the lender can sell your home.
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Reverse mortgages come in many varieties. You can get a lump sum payment, equal monthly payments or a line of credit that you can draw on over time.
Also, there are reverse mortgages available from private, federal, state and local government lenders. The federal, state or local government loan will have better terms than private loans but not everyone qualifies for them. Generally, state and local government reverse mortgages have the best terms but are only available for limited uses, like repairing your property, and there are income restrictions.
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The interest rates and fees on reverse mortgages are generally high. It’s a good idea to look at all your options before taking out this type of loan.
One of the biggest advantages for this type of loan it that it allows an elderly person to continue living in their homes. Usually the other option is to sell the home and either buy a less expensive home or invest the money from the home sale and live in a rented property.
The biggest variables in reverse mortgages are the origination fees and the servicing fees. If you are considering this type of loan, look at those fees.
Generally, the federally-insured "Home Equity Conversion Mortgage" (HECM) will provide the most cash. To qualify for the federal program you must be 62 years old or older. There are also restrictions on the types of homes that qualify. The federal loan also has a provision that requires the borrower to consult a mortgage advisor before taking out this type of loan.
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