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Reverse Mortgage 101

Updated on April 21, 2014

If you are 62 years or more and has at least 40-50% equity in your home than a reverse mortgage may be a good option. The reverse mortgage gives the borrower the ability to borrow against the equity in their primary residence. Instead of making payments to a mortgage company, the mortgage company makes payments to you.. As long as the borrower lives in the primary residence, the loan will never have to be paid back and any heirs will never owe more than what the home is worth and the owner always maintains title to the property. The borrower can elect for a monthly income, open line of credit, or take a lump sum.

The reason for doing a reverse mortgage is to provide more income for a better life, maybe, health care, paying off an existing mortgage, a trip or travel, a gift, home repairs, or just about any reason.

The benefits make the funds disbursed tax free income and the borrower owes nothing as long as they occupy the home as a primary residence at least six months out of a year. The loan can be repaid at any time and the loan is secured solely by the home, the borrower is not personally liable. Any left over equity in the home will pass to heirs if the borrowers state so.

All reverse mortgages are FHA loans.To be eligible, the borrower must be at least 62 yrs., own the home free and clear or have enough equity in order for the reverse mortgage to be able to pay off the existing mortgage. The home must be their primary residences and the borrower cannot be involved in a bankruptcy.

The types of property eligible are: single family homes, up to four units, if multiple, condos, manufactured homes, rural properties and planned unit developments. The amount the borrower can obtain depends on their age (the older you are, the more money you will get), home value, amount of equity, current interest rates and the type of reverse mortgage (fixed, adjustable, line of credit). The money received is tax free.

The reverse mortgage is a loan that needs to be paid back. Normally, is occurs when the last borrower moves out, sells the home, turns the homes into a rental or dies. The loan will be repaid either by the sell of the home or through another loan. If by death of the borrower, the heirs can choose to sell or buy the home to repay the reverse mortgage.

Reverse mortgages first began in the 1980's and have helped many seniors have better "golden years". But like Social Security payments, it is better to wait- the older you are, the more money you will get.


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    • perrya profile imageAUTHOR

      perrya 

      4 years ago

      True.

    • swordsbane profile image

      William Grant 

      4 years ago from Wisconsin

      Ownership with regard to mortgages is a murky thing. If I buy a house with a mortgage, they give me the title and I "own" the house, but I am obligated to repay the loan or they can take my house, so my "ownership" doesn't really mean anything.

    • perrya profile imageAUTHOR

      perrya 

      4 years ago

      My older brother just got one and got a chunk of money to fix up the place even further. In his case, I believe he outright owns the home now. Should he die, his daughter would not be able to keep it because it is out her ability, so it would be sold and the loan paid off.

    • swordsbane profile image

      William Grant 

      4 years ago from Wisconsin

      The idea is that YOU don't have to pay them back. I wonder if they run a credit check on your kids, though. I find it hard to believe that the only criteria you have to meet is to be old enough.

    • csmiravite-blogs profile image

      Consolacion Miravite 

      4 years ago from Philippines

      First time for me to hear this type of mortgage. The usual banking law is that -- if you are beyond 60 years of age, unemployed, and no other source of income -- they don't grant you a loan even if you have adequate collateral. I just don't know if these types of loans are good for the lending companies. They grant a loan without the benefit of being paid... Unless the borrower dies?

    • swordsbane profile image

      William Grant 

      4 years ago from Wisconsin

      Two things:

      1) Yes, you retain title to your home. On the other hand, when I finance a home, I get a title... but if I default, the bank takes the house.

      2) Your heirs will be left with what is essentially a mortgage and have to pay that money back or lose the house.

      A reverse mortgage, when it comes right down to it, is exactly what it says. In a regular mortgage, you pay back the bank for giving you the money to buy a house. In a reverse mortgage, you are taking out a loan on your house, but instead of getting all the money up front, you get a little at a time until you die and the house passes to another.

      The only thing good about a reverse mortgage is that you aren't going to be around for the consequences. If you have any offspring that you might want to leave a paid for house to, or sell and get a fair market price for and leave THAT to your offspring, DON'T get a reverse mortgage.

      From a philosophical standpoint, reverse mortgages perpetuate a debt culture. "Hey.. don't worry about it.. you can ALWAYS pay it back someday." Except when someday actually is is usually out of your hands, and you will be paying back MORE than the amount of money you got in the first place.

      If you HAVE the money, then by all means use it. If you don't have the money, try saving up instead of trying for the instant gratification.

      If you're too old to save for YOUR future. Take a moment to consider those who come after.

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