What Is A Reverse Mortgage?

FinanceMortgage & Debt

  • Author Chris Borg
  • Published December 24, 2009
  • Word count 589

A reverse mortgage is a loan you take out on the equity in your home. You must be 62 years old, or older, to be eligible. You do not have to repay the loan as long as you live in the home. The loan becomes due in full when you move out or pass away. There are some myths and misconceptions when it comes to taking out a reverse mortgage on your home, so let's look at the facts.

Income and Credit Score

Your credit has no bearing upon your eligibility for a reverse mortgage. It does not matter if you have bad credit since your credit score does not even come into play. In fact, none of your assets or even your income matter. A reverse mortgage is based solely upon the equity in your home. You do not need to demonstrate need or be in debt to qualify.

Loan Amount

The amount of your loan will depend upon three things: your age, the value of your home, and the equity in your home. Generally speaking, you can borrow more money the more equity you have and the older you are. However, the FHA does have a cap in place of $625,000 for reverse mortgage loans.

Repayment and Heirs

Many people worry that their heirs will be left with nothing if they get a reverse mortgage on a home. The details of this depend upon your individual circumstances. However, upon your death, the reverse mortgage must be paid in full first. Money that is left over from the sale of the house goes to your heirs. Therefore, the amount left to your heirs depends upon the value of your home verses the value of the reverse mortgage.

There are other circumstances that you must be aware of, in which your reverse mortgage must be paid in full. You must keep your home in good repair and not fall behind on your property taxes. Otherwise the lender may foreclose. In addition, if you sell your home or do not use it as a primary residence, your reverse mortgage becomes due in full. You are not allowed to leave your home for a period of twelve consecutive months or more, such as might happen if you need extended care in a nursing home.

Fees

As with any other type of mortgage loan, a reverse mortgage has fees associated with it. However, these fees do not have to be paid up front. They can be included into the loan but doing so will decrease the amount of cash available to you. The FHA has set caps on origination fees at $6000. Fees will depend on the value of your loan and include insurance premiums, servicing fees, origination fees, and closing costs. These cover taxes, survey, title search, inspection, and appraisal.

Getting Your Money

You can choose how to receive your money. You can take it in a lump cash sum or set up monthly payments to you. You can even establish a line of credit payments so that you have the money available for just when you need it. You can change the type of payment if it becomes necessary.

A reverse mortgage can be a financial asset to you in your retirement years. You won't have to worry about making house payments any longer and you can count on regular monthly payments being deposited into your account. As with any other type of financial or legal arrangement, you should research your options thoroughly before deciding what is best for you and your heirs.     

About Author:

Author Chris Borg writes about smart money management through saving, spending less, retirement planning, debt reduction and improving your overall cashflow at SmartMoneyRx.com

To learn more about creating additional streams of income for your retirement, including reverse mortgages, visit SmartMoneyRx.com

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