Reverse Mortgage

Many people may have heard the term reverse mortgage, but are not exactly sure what it is.  Here are the details you need about this mortgage refinance option.

A reverse mortgage is a mortgage for people who are at least 62 years of age or older and who want to turn part or all of their home equity into some cash.  With a reverse mortgage, a person is still able to have ownership of their house, while continuing to live in it.  When a person obtains a reverse mortgage, all payments are delayed until which time the owner is no longer living in their home. 

A reverse loan is just that, it is a loan that is reversed.  With traditional loans, a homeowner makes payments monthly to a mortgage lender.  However, with a reverse loan, the mortgage lender makes payments to a homeowner. 

With a reverse mortgage, there are several different options for setting up a payment plan.  As a homeowner, you are able to decide if you want to receive the money as one large payment or gradually, month by month.  A homeowner can choose to have the mortgage lender make monthly payments to them for the remainder of time they are living in the house.  Another alternative to receiving monthly loan payments is to have the loan set up as a line of credit.  This kind of home refinance can also be any combination of these options. 

Now that you know what a reverse mortgage is, you are probably wondering how you go about qualifying for one.  In order to figure out exactly how much you are eligible for, you must first take your age into consideration.  If the homeowner is married, then the husband and wife need to use the age of the younger spouse.  Age is not the only factor used in determining how much a person is eligible for. 

Besides the homeowner's age, a home appraisal value is used.  The current interest rates and local lending limit are also used to evaluate how much money a homeowner will receive when applying for a reverse mortgage.  Generally speaking, the older a person is and the more expensive their home is, the more money they are eligible for in a reverse mortgage. 

A homeowner may still qualify for this type of loan even if they already have a traditional mortgage.  However, in order to fully qualify for a reverse mortgage, the homeowner needs to pay off any and all preexisting mortgages.  All of the preexisting loans can be paid off by money you receive from your friends and family, money you have in your savings account or even from the money you obtain from the reverse mortgage. 

Fortunately, you maintain the title to your house.  Therefore, you are still responsible for all property taxes, utilities, insurance, maintenance, fuel and any other expenses that you may incur.  For example, if you happen to not maintain your homeowner's insurance or fall behind on your property taxes, you will then be in jeopardy of the loan becoming due. 

In addition, with this kind of funding, you will be charged a service fee each month.  Generally, the service fee averages around $30.  After you have closed on the reverse mortgage, the service fee will used to manage your account.  In the long run, the service fee can cost a homeowner several thousands of dollars.  However, unlike a traditional mortgage, this is not a closing fee. Reverse mortgage fees are generally established by the lender.  

Also, the homeowner must pay off the entire loan whenever they move from the house.  It does not matter whether the homeowner decides to sell their house, or they simply pass away, the reverse loan must be repaid when they no longer live in the house. 

Another interesting point is that the refinancing amount may never exceed the home's current value.  However, if the home is sold and the profit is more than the loan amount, the difference is given back to either the home owner or his or her estate. 

But, this financial option is less than ideal for owners who only wish to keep their house for a couple of years.  Since there are some considerable fees associated with this type of home refinance, it is generally wiser to consider something like a home equity loan, or a loan with little or no interest. 

Reverse mortgages can be a great way to access the equity in your home.  Homeowners who are over the age of 62 can find the delayed payments very appealing.