What is a Reverse Mortgage?
A reverse mortgage is a loan available to homeowners 62 years or older that allows them to convert part of the equity in their homes into cash. The product was created to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and healthcare costs with any remaining funds.
How Does a Reverse Mortgage Work?
In a traditional mortgage, the homeowner makes monthly payments to the lender. The tables are turned with a reverse mortgage, and the lender makes payments to the homeowner. The amount of money the homeowner receives is based on the value of their home, their age, and the interest rate.
What Are the Benefits of a Reverse Mortgage?
There are several benefits of getting a reverse mortgage.
Extra cash: First, it can give you extra cash to cover basic living expenses or unexpected costs. You can choose to receive the money in a lump sum, as a line of credit, or through monthly payments.
Flexibility: Second, you have the flexibility to spend the money however you want. You don’t have to justify how you use the funds to the lender.
No monthly payments: Third, you don’t have to make monthly payments as you do with a traditional mortgage. The loan is repaid when the last surviving borrower dies, sells the home, or permanently moves out of the home.
What Are the Risks of a Reverse Mortgage?
There are also a few risks to be aware of with a reverse mortgage.
Loss of equity: One risk is that you could lose equity in your home if the value of your home decreases and you need to sell it before the loan is repaid.
Foreclosure: Another risk is that you could face foreclosure if you don’t stay current on property taxes and insurance or otherwise violate the loan terms.
What Are the Requirements for a Reverse Mortgage?
To qualify for a reverse mortgage, you must be at least 62 years old and have sufficient equity in your home. You must also own a significant equity stake (50%) in your home, which will serve as collateral for the loan. If you do not have a mortgage on your home, you may still be able to obtain a reverse mortgage, but the loan amount will be smaller.
How Do I Get a Reverse Mortgage?
If you’re interested in a reverse mortgage, the first step is to talk to a loan officer. They will review your finances and help you determine if a reverse mortgage is a right option for you.
If you decide to move forward with a reverse mortgage, the loan officer will work with you to complete the application and paperwork. Once the loan is approved, you’ll need to choose a repayment option and closing date.
You’ll sign the loan documents at closing, and the funds will be disbursed to you. You can choose to receive the funds in a lump sum, as a line of credit, or through monthly payments.
A reverse mortgage can be a great way for retirees to supplement their income. It’s important to understand the risks and requirements before applying for a reverse mortgage. If you’re interested in a reverse mortgage, talk to a loan officer to see if it’s the right option.
