What Is A Reverse Mortgage and Who Qualifies For One?

Written by: Arron J. Staff writer @ Hyggehous.com

Photo Gallery

You may have heard of reverse mortgages and wondered what they are all about.

A reverse mortgage is a loan that is available for senior homeowners over 62 years old. The loan uses the homeowner's home as collateral and allows them to access some of the home's equity. So essentially, instead of the homeowner making monthly payments as you do with a mortgage, the lender will give the borrower a monthly amount. Shop Tiny Homes What makes this loan desirable is that it doesn't have to be repaid until the homeowners move off of the property or after they pass away. After that, they have about 6 months to repay the reverse mortgage balance or sell the home in order to pay the balance in full. It was created to assist retirees who have limited income use the money they've invested into a home to cover their monthly living expenses. The nice thing is that there is also no restriction for how the reverse mortgage funds can be used. The homeowners must keep up with paying their property taxes, homeowners insurance and any homeowners association dues. To be eligible for this type of loan the Federal Housing Administration (FHA) requires you to be a homeowner, live in the home that you will be applying the reverse mortgage to, be at least 62 years old or more, have only a small balance or have paid off your mortgage.

Then, you have to live in the home as your primary residence and continue to pay all of the other fees that come with living in your home.

When homeowners don't meet these payments, the loan can default which might result in foreclosure. If one of the homeowners passes away or they move from the home, the home can either be put up for sale, or the reverse mortgage must be repaid. If the price on the house is greater than the remaining loan balance, the remaining money will belong to the estate. Or, on the other hand, if the money made from selling the home isn't enough to pay the reverse mortgage the lender actually takes the loss and can then request a reimbursement from the FHA. You may also be wondering if any of your other assets like cars, boats, second homes, cottages, etc. will be affected by the reverse mortgage, and no, they aren't. So in the case of the sale of the home not being enough to pay off the reverse mortgage, no other assets can or will be taken from you. So how much can you get for a reverse mortgage? It all depends on the age of the youngest borrower, the value of the home, the interest rate, and any lending limits that are put in place by the government.

Once everything is ready to go, there are a few different ways people can get their reverse mortgage funds.

One of the ways is in a lump sum where the entire amount will be given to you, but this is only in the case of a fixed-rate loan. The other option is tenure, where you would get equal monthly payments over a certain amount of time. A line of credit is another option where you can take out any amount until that amount is finished. Or a term where equal monthly payments are given over a fixed duration. It can also be a combination of any of these options - Lump Sum, Tenure, Term, or a Line of Credit. The difference between a Reverse Mortgage and a Home Equity Line of Credit is that the lender doesn't require the borrower to make monthly mortgage payments with a reverse mortgage loan. Many people will use the remaining money to pay medical bills, do home renovations or repairs or to keep some money for emergencies. Also, the nice thing about the reverse mortgage is that it cannot be reduced by the lender and then any amount that isn't used will actually grow over time.