A reverse mortgage loan allows home owners 62 and older to convert part of their home’s equity into cash. It is a “reverse” loan in that the bank pays the borrower and not the other way around. The borrower is not required to pay back the loan until the home is sold or the borrower passes away. A reverse mortgage can be a great way for retired individuals with limited income to take advantage of the equity in their home to pay for living expenses and healthcare.
Who qualifies for a reverse mortgage?
Borrowers 62 years of age and older. The borrow is required to live in the property until the loan is paid off.
How much money can you get from a reverse mortgage?
Typically a borrower will be able to access no more than 80% of the equity in their home and in many cases the number may be lower based on a few factors such as age, current home value and interest rate.
How is the loan paid to the borrower?
The borrower can choose to receive monthly payments or take it all in one lump sum. Alternatively, the borrower could choose a hybrid option, which includes both an upfront lump sum as well as monthly payments. Or another options is a line of credit, where money can be withdrawn as needed, up to a certain limit.
What is the downside to a reverse mortgage?
While the borrower receives money, interest builds up over time on that money. Since the loan typically isn’t paid down like a traditional 30-year mortgage, once the borrower sells the house or passes away any remaining equity in the home may be used by the lender to recover the principle and interest of the loan.
How do you pay back a reverse mortgage?
Typically when the home sells or the borrower vacates the property or passes away.
What is the interest on a reverse mortgage?
This can vary depending on the lender from 3-10% or higher.
Who owns the property if I take a reverse mortgage?
You do (the borrower). Even though a reverse mortgage is a rising debt, falling equity loan the borrower still owns the property until the loan is paid back.
What type of home is eligible for a reverse mortgage?
The borrower’s primary residence. And the borrower must live there for the duration of the loan. Vacation or rental properties do not qualify for reverse mortgages.