What is a Reverse Mortgage?

With a traditional mortgage, a borrower makes regular monthly payments to a lender in order to gradually pay off the loan. The term “reverse mortgage” stands for a method of using a mortgage in the opposite way a traditional mortgage works. In other words, with a reverse mortgage the payment stream is reversed.

With a reverse mortgage, a lender makes payments to the borrower or pays the borrower a lump sum upon the closing of the loan. After the homeowner either sells the home or vacates the property, the homeowner or the estate of the homeowner has approximately six months to repay the reverse mortgage loan to the lender.

Not everyone qualifies for a reverse mortgage. This type of loan is only available to individuals who are homeowners, who have equity in their homes, and who are also over the age of 62.

Why Would Anyone Want a Reverse Mortgage Loan?

Reverse mortgage loans are primarily utilized by individuals who are on a fixed income and would like to take advantage of the equity they have in their homes to help pay their debts, cover their basic monthly living expenses, pay for their health care costs, and pay other miscellaneous bills. Ultimately, a reverse mortgage provides homeowners with cash that can be used any way the homeowner chooses. As long as the homeowner is living in the home, the mortgage lender will not require repayment of the loan. However, the homeowner must maintain all property tax bills and homeowner’s insurance premiums.

Benefits of a Reverse Mortgage:

  • A reverse mortgage loan cannot be outlived by homeowners and will remain in effect as long as at least one homeowner is using the home as his/her primary residence.
  • If a homeowner passes away, the homeowner’s estate has the choice of either putting the home up for sale or repaying the reverse mortgage loan.
  • When a property attached to a reverse mortgage is sold, the equity in the home remains owned by the estate – as long as the equity is higher than the balance of the reverse mortgage loan.

How is Money Distributed to Homeowners With Reverse Mortgages?

There are several ways in which money can be distributed to homeowners after a reverse mortgage loan is closed:

  • Homeowners can opt for a lump sum of cash at the closing of the loan
  • Homeowners can choose to receive equal monthly payments for the duration of the loan
  • Homeowners can choose to receive equal monthly payments for a specific number of years
  • Homeowners can establish a line of credit, which they can use until the all the funds are spent

A reverse mortgage is not for everyone, but it can be an excellent choice for older homeowners who wish to benefit from the equity they have in their homes without being forced to sell their homes outright. For more information about reverse mortgages, call the Home Loan Arranger today at (303) 862-4742.

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