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Helpful Information on Reverse Mortgage

Article By: Suvadip Das

Selecting the right Reverse Mortgage will hopefully give you greater financial independence and reassurance during your golden years. However, selecting the wrong plan could lead to financial disaster. Here is some helpful information on reverse mortgage:

1. What is a reverse mortgage?

A Reverse Mortgage is a widely known and somewhat complex residential mortgage loan just for senior homeowners. It is not required of you to make monthly payment loans if you get the approval for a Reverse Mortgage. A typical reverse mortgage is repaid in case of death, selling of the home or if you move out permanently. This repayment is made from your home's equity at the time of selling. You, or any of your inheritors are allowed to keep any sales proceeds from your home in excess of what you owe the lender.

A reverse mortgage is thus a special type of home loan that lets a homeowner transform a part of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a second mortgage or traditional home equity loan, no repayment is necessary until the borrower(s) no longer use the home as their principal residence. Reverse mortgage offers these benefits, and it is also insured.

2. Who can qualify for a reverse mortgage?

To qualify for a Reverse Mortgage, you must be a homeowner who is at least 62 years old. It is customary that you should own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from authorized counseling sources prior to acquiring the loan. It is compulsory to repay the loan of your mortgage either in full or almost in complete. Generally, the amount you can borrow depends on the amount of equity you have in the home, the value of your home, and your age at the time of loan application.

For example, one of the many reverse mortgage plans available would permit a seventy-year old homeowner with a home worth $200,000 to borrow $73,201. A ninety-year old homeowner would be able to borrow $210,573 under the same plan.

3. Can I apply if I didn't buy my present house with mortgage insurance?

Yes. While your property must meet minimum property standards, it doesn't matter if you didn't buy it with an insured mortgage. Your new reverse mortgage will be a new insured mortgage loan.

4. What types of homes are eligible?

Your home must be a single-family dwelling or a two-to-four unit property that you possess and occupy. Detached homes, townhouses, units in condominiums are eligible. It is possible for condominiums to qualify under the Spot Loan program. The home must be in reasonable condition, and must meet minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.

5. What's the difference between a reverse mortgage and a bank home equity loan?

With a conventional second mortgage, or a home equity line of credit, it is compulsory to have enough income in comparison to the debt ratio in order to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The loan you apply for depends on the interest rate, other fees and the appraised value of your home or mortgage limits for your area, whichever is found to be less and also your age.  In short, the more valuable your home is, the older you are, and the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as your house remains the principal residence. Similar to any house owners, you are liable to pay your real estate taxes and other additional payments like utilities, but with an insured Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

6. Can the lender take my home away if I outlive the loan?

No, he cannot, even if the loan is due. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.

7. Will I still have an estate that I can leave to my heirs?

In case you sell your home or no longer use it as your primary residence, then you or your estate will have to repay the cash of reverse mortgage along with interest and other fees to the lender. The equity left in your home (if any) after the loan is met, belongs to you or to your heirs. None of your other assets will be affected by reverse mortgage loan. This debt will never be passed along to the estate or heirs.

8. How much money can I get from my home?

The loan you apply for depends on, the processing fees, the present interest rate, other loan fees and the appraised value of your home or mortgage limits for your covered area, whichever is found to be less and also your age.  In short, the more valuable your home is, the older you are, and the lower the interest, the more you can borrow.

9. Should I use an estate planning service to find a reverse mortgage?

A firm that will give you the name of a lender for a “small percentage” of the loan may have contacted you. It is not recommended to use an estate planning service, or any service that charges a fee just for referring a borrower to a lender! The information is generally provided without cost, and approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral

10. How do I receive my payments?

You have four options:

• Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
• Term – In a fixed period of time the borrower has to make equal monthly payments

• Line of Credit - in installments or unscheduled payments, and also in amounts of borrower's own choosing until the line of credit gets exhausted.

• Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

About The Author 

Suvadip Das is a research fellow in management and at the same time a web developer. Web design is his passion. He has worked for  Freelance Writer Organization and various websites including www.super-mortgages.com. His credentials include writing keyword enriched articles.