A Reverse Mortgage is a specialized kind of loan available typically to people who are 62 years or older. A reverse mortgage allows borrowers to convert a portion of the accumulated equity in their primary homes, into cash. Unlike conventional loans in which borrowers are required to make monthly repayments, with a reverse mortgage, the lender pays money to the borrower.
Borrowers can use the loans for any purpose, including buying another home if they choose to. The loan amount, together with accumulated interested is repaid when the borrower dies, sells their primary residence or chooses not to live in it any longer. For this reason, reverse mortgage loan amounts can never exceed the value of the home.
Lending institutions have different eligibility requirements for reverse mortgages. Typically however, borrowers need to be 62 or older, and must own their homes, or only have a small mortgage balance remaining to be paid off. To be eligible for a reverse mortgage, the borrower or borrowers need to also be living in the home against which the mortgage is secured. Several options are available to receive loan payments. Borrowers can choose to take the loan amount in one lump sum amount. Or they may choose to receive it in equated monthly installments until the entire loan amount is paid out. In other cases, borrowers may choose to use a reverse mortgage as a line of credit against which they can borrow as the need arises.
The amount of loan that is available under a reverse mortgage depends on the age of the borrowers, the assessed value of their home, the current interest rates and the projected sale price of the home. Generally speaking, the older the borrower and more valuable the home, the greater is the loan amount available.
Though reverse mortgages apply only to older people, the subject is an important one for younger borrowers to consider as well. Reverse mortgages can play a vital role in helping older people remain solvent and in their homes. It gives people a way to take advantage of the equity they have painstakingly built up in their homes, and offers a measure of security during retirement. The U.S Department of Housing and Urban Development (HUD) offers a reliable source of information on the topic. The National Reverse Mortgage Lenders Association (NRMLA) is another useful resource on the topic.
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