A reverse mortgage is a special type of home loan that lets you convert a portion of the equity or wealth in your home into cash. The wealth that you acquired over the years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, Home Equity Conversion Mortgage (HECM) borrowers do not have to repay the HECM loan until the borrowers no longer use the home as a primary residence or are unable to meet the responsibilities of the mortgage. How a reverse mortgage works is that the borrower receives money from the lender. The money you receive and the interest charged on the loan increases the balance of your loan each month. Over time the loan amount will grow. Equity is defined as the value of your house minus the amount of loan, therefore as time goes on you will have less equity in your house as your loan balance increases. Reverse mortgage loans are often used to pay for home renovations, medical and daily living expenses. Homeowners who have an existing mortgage often use the reverse mortgage loan to pay off their existing mortgage and eliminate monthly mortgage payments.
Qualifying For a Reverse Mortgage:
- You must be at least 62 years old
- The home must be your primary residence
- You must have significant equity remaining in your home after paying off any existing mortgages with the new Reverse Mortgage
Distribution of Funds:
There are a combination of ways in which a reverse mortgage could be received:
- Term: a monthly payment for a specific length of time
- Tenure: monthly payments for the life of the loan
- Lump sum: a sum of cash at the time of closing
- Line of Credit: just as with a credit card you can draw money as needed up to set eligible amount
Is A Reverse Mortgage For Me?
A reverse mortgage may be a sound financial decision, however there may also be a better option out there for you. If you have more questions, please contact us.