Never heard of reverse mortgage or how it works? Well, you are in the right place. A reverse mortgage is a type of loan that allows homeowners between the ages of 62 and above to borrow money.
They are allowed to borrow money against part of their home equity. A reverse mortgage is different from a regular mortgage, where homeowners have to make payments to the lender.
But in the case of a reverse mortgage, the lender is the one who makes regular payments to the homeowner. However, homeowners who purchase this kind of mortgage can still live in their homes. But in a situation where you want to permanently move out of the house, the loan must be repaid.
What is a Reverse Mortgage?
A reverse mortgage is basically a loan; it is a way for older homeowners to borrow money based on the equity in their home.
Homeowners who are between 62 and above have considerable home equity. They are allowed to borrow against the value of their home and receive funds as a fixed monthly payment or line of credit.
How Does a Reverse Mortgage Work?
Reverse mortgages are very easy to work with. If you are 62 years of age or older, you are qualified for a reverse mortgage. With this type of mortgage, the amount of money you can borrow is based on how much equity you have in your home.
To calculate your equity, calculate how much you can get for your home if you sell it, then subtract what you owe on your mortgage.
Types of Reverse Mortgages
There are three different types of reverse mortgages; let’s take a look at the list below.
• Proprietary Reverse Mortgage
The first on our list is the proprietary reverse mortgage; this is a private loan that isn’t backed up by a government agency.
This means that the government does not regulate the eligibility requirements, fees, rates, or underwriting process. It is the lenders that set up their rates, fees, terms, and underwriting process, along with the eligibility requirements.
• Single-Purpose Reverse Mortgage
This is the least expensive type of reverse mortgage because the loans are provided by non-profits and state and local governments.
These loans are provided for particular purposes, like repairs or improvements. However, single-purpose reverse mortgages are only available in certain areas.
• Home Equity Conversion Mortgage [HECM]
Lastly, there is a home equity conversion mortgage. This is a type of mortgage that is backed by the U.S. Department of Housing and Urban Development.
HECM are more expensive than conventional mortgages. But loans gotten from it can be used to do anything.
How Much Money Can I Get From a Reverse Mortgage?
The amount of money you can borrow from a reverse mortgage is based on your home equity. When you take out this mortgage loan, the lender will allow you to borrow a percentage of your home equity.
Normally, homeowners can borrow up to 60% of their home equity. However, the amount of money you can borrow depends on your age, home value, and financial situation.
What Can I Use a Reverse Mortgage For?
When you have gotten the loan from your reverse mortgage, you can use it to do anything you want. It can be used for the following:
- Home improvements
- Living expenses
- Debt consolidation
- Buying another home that will suit your needs
- Helping children with college
These are the things you can do with the proceeds from this mortgage loan.
Reverse Mortgage Requirements
There are certain requirements that must be met before you can apply for this mortgage loan. Let us take a look at the eligibility requirements.
- Homeowners must be between the ages of 62 and older.
- You must have the financial capability to continue to make payments.
- You cannot be delinquent on any federal debt.
- The property must be occupied as your primary residence.
These are the eligibility requirements needed to apply. If you have no issues with these requirements as a homeowner, then you can go ahead and apply.
How to Get a Reverse Mortgage
Are you a homeowner and want to get a reverse mortgage? Follow these simple steps to do so.
- The first step is to determine your eligibility.
- After that, you have to do research on different lenders and compare them.
- Once you have gotten the best, you can then submit a formal application.
- Complete the mandatory counseling session.
- Get approved and select your disbursement method.
- Receive your funds.
Now you can see that the steps to get a reverse mortgage are very easy. If you carefully follow the above-listed steps, you can get a mortgage in no time.
How Do I Find a Reverse Mortgage Lender?
It can be very difficult to find the right reverse mortgage lender. But when you are shopping around for a lender, you must look out for two things.
The first thing to look out for is the price, and the second is customer service. You should also look out for interest rates and other fees.
When Do You Have to Pay Back a Reverse Mortgage?
Reverse mortgages are only paid back when the lender dies. But there are other instances where you have to repay it.
The only time you can repay your reverse mortgage is when you no longer occupy it, either because you have sold it or because you have permanently moved out.
Who Benefits Most From a Reverse Mortgage?
The people who benefit more from this mortgage loan are older homeowners. Homeowners who are 65 years of age and older benefit as well.