A reverse mortgage allows homeowners aged 62 and up to take advantage of the equity in their property. A homeowner who owns their house outright — or at least has significant equity to draw from — can use a reverse mortgage to withdraw a portion of their equity without having to repay it until they leave the property.
You might be asking why anyone would want to take out a loan against their property, which they have worked so hard to pay off.
Here’s how reverse mortgages operate and what you should know if you’re thinking about getting one.
- What is a reverse mortgage and how does it work?
- What is a reverse mortgage and how does it work?
- In a reverse mortgage, who owns the home?
- What can you do with a reverse mortgage?
- the qualifications for a reverse mortgage
- Types of reverse mortgages
What is a reverse mortgage and how does it work?
A reverse mortgage is a sort of loan that allows homeowners aged 62 and up who have paid off their mortgage to borrow a portion of the equity in their house as tax-free income. In contrast to a traditional mortgage, where the homeowner pays the lender, a reverse mortgage rewards the homeowner.
Homeowners who choose this type of mortgage don’t have to make a monthly payment and don’t have to sell their home (they can stay in it), but the loan must be returned when the borrower dies, permanently moves out, or sells it.
Reverse mortgages are one of the most common types of loans.
In a reverse mortgage, who owns the home?
In a reverse mortgage situation, you own the home just like any other form of a mortgage.
The mortgage, on the other hand, is due in full when the borrower dies or moves. According to Michael Sullivan, a personal financial adviser with nonprofit credit counseling and debt management service Take Charge America, if you can’t or won’t pay off the loan, the lender can sell your property to reclaim the money owing.
“Typically, if the house is sold for less than the amount owing, the homeowner or beneficiaries are not accountable for any charges,” Sullivan adds.
What can you do with a reverse mortgage?
According to Bruce McClary, a spokesperson for the National Foundation for Credit Counseling, frequent and appropriate uses of reverse mortgage earnings include supplementing retirement income, covering the cost of needed home repairs, and paying out-of-pocket medical expenses.
“A reverse mortgage can avoid seniors from turning to high-interest lines of credit or other more costly loans in every circumstance where normal income or accessible savings are insufficient to cover needs,” McClary says.
What is the maximum amount of money you can collect from a reverse mortgage?
According to Boies, the amount of money you can collect from a reverse mortgage is determined by a variety of criteria, including the current market worth of your property, your age, current interest rates, the sort of reverse mortgage you have, its related charges, and your financial assessment.
If the house has any additional mortgages or liens, the amount you receive will be affected. If you have a balance on a home equity loan or a home equity line of credit (HELOC), or if you have tax liens or judgments, the reverse mortgage earnings will have to be used to pay them off first.
