What are reverse mortgage loans?

How can these loans benefit borrowers?

Reverse mortgages have become increasingly popular over the past few years with retired homeowners as the housing market has surged to unprecedented heights. With the sudden increase in home values homeowners have also enjoyed huge increases in equity. Reverse mortgages allows qualified homeowners to take advantage of that equity and achieve their retirement goals. Many retirees fall into the category of 'house rich and cash poor' these loans are the answer for those individuals.

Information about Reverse Mortgages

A reverse mortgage is a home loan that is secured against your home and pays you tax free income payments instead of you paying back the loan.

There are a few requirements for these loans:

First the borrower(s) must be at least 62 years old and live in the home as a current residence. There are typically no income, employment or credit guidelines to adhere to as is the case with traditional home loans.
Another stipulation for these loans is that the loan must be repaid if the borrower(s) sell, move or pass away.
Finally, borrower(s) are required to attend a free educational consultation prior to closing the loan. This session will review everything about the loan so the borrower(s) is fully aware of the product and program they are obtaining.

Once a borrower(s) is qualified by the above items the lender will perform a calculation to determine the possible amount of funds. This calculation is based on the age of the borrower, the value of the home, balance of current mortgage and market interest rates. So if you are older, your home has a high value and you have a small outstanding lien then you will be entitled to more money.

Now that we see the basic functions of a reverse mortgage, let's look at some of the features that would benefit the retirees.

Reverse mortgage payment options

You are able select from three different payments. You can choose between a Lump Sum payment, Monthly Installments or a Line of Credit. Obviously this takes some serious discussion with your family and financial professionals so make sure you do the necessary research.

Tax Free

All funds received from any of the above payments are tax free.

You retain title on the property

As long as you live in the property you retain ownership and can pass on to your heirs. The loan will only need to be repaid if you sell, pass away, or are forced to move.

Nonrecourse

This ensures that you never owe more than the value of your home. Interest owed on the loan grows over time so this prohibits the loan from getting to high.

As you can see reverse mortgages are very involved and require a great deal of research. However they do give homeowners the piece of mind to not worry about paying a monthly mortgage payment. You've spent a great deal of money and years in your home why not have that home assist your retirement goals. You can also read our pros and cons of reverse mortgage loans article.

What are reverse mortgage loans?

Information about Reverse Mortgages

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