It has been advertised all over television for the last several months – reverse mortgages. Just how does this work? Also called home equity conversion loans, reverse mortgages allow homeowners to use equity without selling their home if they are over the age of 62.
Based on the equity that the owner has built up in the home, the lender will pay out money using various methods – a regular monthly payment, line of credit or as a lump sum.
Reverse mortgages are not required to be repaid until the borrower moves into a retirement community, sells the property or passes away. Once you no longer use your home as your main primary residence, you or your estate must repay the funds plus other charges, such as interest and finance charges.
For the most part, you must be at least 62 years old and owe very little to nothing on your home. Another stipulation is that you must meet with a counselor from an independent government approved housing counseling agency.
Do you have choices available to get cash? Yes. With a reverse mortgage, you can choose to get a set monthly cash advance for a for a specific time period for the length of time you live in your home. You may also choose to get a line of credit on which you can draw on the loan proceeds in any amount that you choose. Another option is a combination of the methods, where you can receive monthly payments as well as a line of credit.
For retirees or those who are no longer working, reverse mortgages are the perfect way to supplement your income. Social Security and Medicare benefits are not affected by this loan, and interest rates may be adjustable or fixed.
What if you outlive your loan? Your property cannot be taken away by your lender. If the balance of your loan grows to be of greater value than your property, you will not have to sell your home to pay off the loan.
A reverse mortgage is a good way for older Americans to feel more financially secure. They come in handy when unexpected medical expenses arise, or when home improvements may be needed. Many criteria are considered when applying for a reverse mortgage, and this may be a good solution for many seniors who would benefit from extra money.
Joel McLaughlin – Dataflurry Lending & Mortgage SEO