The reverse mortgage is an option many seniors are considering today. Home owners that are at least 62 years of age can use a reverse mortgage to get cash out of their home equity to use on other things. A reverse mortgage is basically a home equity loan, but the homeowner doesn’t have to pay it off in their lifetime. As long as they continue to live in the home, no payments are required on the reverse mortgage.
Basically, a mortgage company will make payments that are based on a percentage of the home’s worth to the reverse mortgage borrower. After the borrower ceases to live in that home, the mortgage company sells the home. There are different kinds of reverse mortgages from different kinds of lenders, but there are a few things that remain the same with any reverse mortgage. Older home owners, for example, will always qualify for a larger reverse mortgage loan amount than younger home owners. All home owners must be at least 62 years of age to qualify.
A reverse mortgage also cannot be taken out when the home owners still owe money on other mortgage loans. The finance charges can also be included in the cost of the reverse mortgage loan. One stipulation that mortgage lenders make is that they can force the home owner to pay back the reverse mortgage if they fail to maintain the property, keep it insured or pay property taxes. This also applies when the home owner declares bankruptcy, abandons the property, commits fraud, sublets the property or takes out other mortgage loans.
The reverse mortgage loan has risen in popularity recently, and the most common reverse mortgage that people are taking out is the home equity conversion mortgage, or HECM. Reverse mortgages have been around since the 1960s, but these have only been available since 1989. The United States Department of Housing and Urban Development offers HECMs, which are the only reverse mortgage issued by the government. This limits the cost to reverse mortgage borrowers and guarantees that mortgage lenders will meet certain requirements.
Other mortgage lenders also offer private reverse mortgage loans. These reverse mortgages come in higher amounts, but they are not federally insured. The total cost of the reverse mortgage will depend on the mortgage lender. The Federal Truth in Lending Law requires mortgage lenders to give reverse mortgage borrowers a cost disclosure of the total annual loan cost. This is an important number for seniors to use when comparing reverse mortgage loans from different financial institutions. The actual cost of a reverse mortgage will depend largely on the income options selected, so borrowers should keep that in mind.
The reverse mortgage is an option for seniors with home equity that need more income. The reverse mortgage has benefits and drawbacks that must be considered. Seniors that want to keep their home in the family should obviously not consider a revere mortgage. For many people, though, a reverse mortgage can provide the income necessary to enjoy the golden years without worry.
