Reverse mortgages can be an excellent financial tool, specifically for homeowners age 62 or older. This loan uses part of your home’s equity and converts it into cash, as either a lump sum payment, monthly payments, line of credit, or a combination of these methods. Unlike traditional mortgages, there is no repayment required until the last borrower no longer resides in the home. However, homeowner’s insurance, real estate taxes, as well as keeping the home in good repair is still required by the borrower with reverse mortgages.
Eligibility for Reverse Mortgages
Eligibility is pretty straightforward for reverse mortgages. These loans are available to homeowners of age 62 and older. Their home must be paid off or with a small balance. Upon closing, the remaining balance on the home must be paid in full. The borrower must reside in the home, and the property must be HUD approved. Each of these points must be met in order to be approved. Prior to making your final decision on which lender to use, be sure to receive several reverse mortgage quotes.
The Workings of a Reverse Mortgage
Annuities and reverse mortgages are similar in how they work, where the life expectancy of the borrower plays a primary role.
Maximum amount from reverse mortgage received depend on many factors:
* The current rate of interest
* The youngest borrowers age
* Lesser of the property value (home equity) or up to the maximum limit from county of $625,500
There is always going to be more equity available for older borrowers. After establishing the amount of the reverse loan, the method of payment is selected. The different options to choose from include a lump sum, monthly payments, a line of credit, or a combination of methods. Although many options for payments are offered, it is recommended by the Consumer Finance Protection to consider a line of credit or monthly payments.
Another thing to keep in mind: all lenders are not the same and cannot be treated as such. When shopping around, get many reverse mortgage quotes from various places to ensure you get the best loan for your needs.