How do you know if you’re eligible for a reverse mortgage? Well let’s start out first with what a reverse mortgage is. A reverse mortgage is a loan that allows older homeowners to access the equity in their homes. Instead of making monthly mortgage payments to reduce your debt, you eliminate your monthly payments and actually get money! Reverse mortgages are an option for people who want to turn substantial home equity into cash.
Just like a traditional mortgage, a Reverse Mortgage comes with fees, terms and qualifications for eligibility. You have to be age 62 or older, have a single-family home or other approved property and own the property. You also must live in the home as your primary residence, make the reverse mortgage your first mortgage or you can pay off existing loans with proceeds from your reverse mortgage.
You must also continue to qualify after the loan is made. You should check your reverse mortgage agreement for details, yet generally you have to continuously use the home as your primary residence and keep current on the taxes, insurance, maintenance, etc.
After knowing that you are eligible for a Reverse Mortgage, you’ll want to know how much it will cost you. Like all loans, reverse mortgages have costs. Reverse mortgage interest is the interest you pay on the borrowed money and there may be other costs as well. Most costs can be bundled with the loan so you do not pay out of pocket.
You may be wondering how it works? It’s actually simple, reverse mortgages pay you in a variety of ways. You can receive a lump-sum, periodic payments, a line of credit, or some type of combination. Lump Sum is the easiest. You get the loan balance all at once. Do with it what you will, yet there may not be more for you tomorrow. If you sign up for a periodic payment plan, you’ll get regular payments. These payments might last for a number of years (10 years, for example), or until your loan comes due (often as a result of your death or your moving out of the home). If you don’t know exactly how much you’ll spend or how soon you’ll need it, the line of credit option may make sense.
Some reverse mortgage lines of credit are “growing” lines of credit meaning you may have more and more money available to you as time goes on, not bad. Can’t decide? You can use a combination of the programs above. For example, you might take a smaller lump sum up front and keep a line of credit for later. This may be a reasonable approach if you need to pay off existing debt with a portion of your reverse mortgage loan. Sounds great doesn’t it? You maybe thinking what is the catch? What happens when the loan balance exceeds the value of my home? Or how will this affect my heirs? Well, there is no catch, A Reverse Mortgage is the answer to all your dilemmas. Even if the loan balance exceeds the value of your property, you must simply occupy the property, and maintain the payment of taxes and insurance. As long as you abide by the loan agreement, you cannot be forced to sell or vacate your home. No deficiency judgment can result from your reverse mortgage. FHA insurance guarantees against any loss to the lender. And only upon your passing does the loan balance become due and payable. Your heirs may then repay the loan by selling your home, or refinance the reverse mortgage and keep the home. If your home has appreciated in value, you are required to pay back only the outstanding balance. Any money that remains after the mortgage is paid will go to your heirs.