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Definition Of Reverse Mortgage And Reverse Mortgage Facts
The definition of reverse mortgage is a special type of home loan that enables you to convert your home equity into cash. The amount of a reverse mortgage loan depends on your age, value of house, if there are any other loans on the house, interest rates and fees. With a reverse mortgage the equity that is built up over the years can be taken out via lump sum, monthly payments or occasional payments to supplement social security or other income sources.
The reverse mortgage allows the borrower to get some equity out of their home without selling, giving up title or paying monthly payments.
Many of the same costs that you pay to purchase or refinance a home apply to reverse mortgages also. Some of the fees for a reverse mortgage include: origination fee, mortgage insurance premium, an appraisal fee, and other standard loan costs such as title charges.
The loan become due when the principal borrower dies, sells the residence or permanently moves from residence. A reverse mortgage is an excellent option for seniors to take out some well deserved equity on their home.
Reverse Mortgage Facts You Need To Know
If you are considering a reverse mortgage loan, it is very important to know the important reverse mortgage facts about this type of loan.
- A reverse mortgage loan must be repaid when the owner dies or sells the home.
- You must be 62 years old to qualify for a reverse mortgage.
- You must own the home and live in the home to qualify for a reverse mortgage.
- The money from a reverse mortgage can be used in any way you want.
- There are no income or credit qualifications when applying for a reverse mortgage.
- Interest rates for a reverse mortgage are normally variable and tied to a financial index rate.
- If you have an existing mortgage on the house it will be paid off with money funded through the reverse mortgage.
- If you die, your heirs are entitled to the equity left after the reverse mortgage is paid in full.
- Credit score is not required to qualify for a reverse mortgage.
- There are no up front fees for a reverse mortgage but closing costs vary depending on the value of the home and where it is located.
- Money received from reverse mortgage loans are not taxable but it is suggested to always consult with a financial advisor.
- A reverse mortgage borrower retains ownership of the home. The title of the home will remain in the borrower's name.
Pros and Cons of Reverse Mortgages
The Difference Between a Reverse Mortage and a Traditional Equity Line Of Credit
A traditional home equity line of credit requires you to make monthly mortgage payments after qualifying for the mortgage with a lender. The lender will make sure your income covers your debt ratio sufficiently. On the other hand a reverse mortgagepays you and is available regardless of your current income levels. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. Generally speaking, the more your house is worth and the older you are, brings you lower interest and higher borrowing limits.
With a reverse mortgage, you don't make monthly principal and interest payments. You will never be foreclosed upon because you missed your monthly mortgage payment. The lender pays you according to the payment plan you select. You are still are required to pay your real estate taxes, insurance and other conventional payments like utilities.