Understanding the Reverse Loan Mortgage

By Penny S. Harmon

A reverse loan mortgage is a loan taken out, using your home as collateral, that requires no repayment for as long as the owner lives in the house. This mortgage is a wonderful option for elderly homeowners that require work done on their home or would simply like to have a little cash in their pocket.

Generally, a reverse mortgage requires the borrower (the homeowner) to be over the age of 62. The home must also be their primary residence for at least six months out of the year and the home must be either a single-family dwelling, a 2-4 unit building, or a federally-approved condominium. A mobile home may qualify if it is built on a permanent foundation and meets the other requirements.

Unlike other mortgage loans, the borrower’s income is not a consideration for receiving the loan. This is due to the fact that there will be no repayments of the loan unless the last surviving borrower moves out of the home, sells the home, or dies. Therefore, a borrower will not have to worry about ever losing the home due to not being able to make expensive loan repayments.

There are certain things, however, that would cause the borrower to repay the loan. These things would include not paying the property taxes, failing to maintain and keep the home in proper order, and failing to keep insurance on the property. Other things that may cause the borrower to repay the loan include bankruptcy, abandonment of the property, if the government were to condemn the property for a health or safety reason, renting out all or even part of the property, or taking out another debt against the property. Any of these things could possible make the lender demand repayment of the loan.

The amount of money loaned to a borrower varies, due to the type of reverse mortgage plan and program selected. The amount also depends upon the type of cash advances the borrower chooses to receive. There are some reverse mortgage that may cost more than others and with each loan program, the amounts the borrower can receive may depend upon the borrower’s age and the value of the property. Generally, the older the borrower is, the higher the cash amount they can receive, as well as, the higher the value of the property, the higher the cash amount the borrower can receive. These amounts may also depend upon the current interest rates and closing costs.

A reverse mortgage can be very helpful to someone who is cash poor but owns their home. The cash received can be used from anything to fixing up the property or daily living expenses. If thinking of taking out a reverse mortgage on your property, simply make sure that you thoroughly read over all of the paperwork before deciding whether the loan program will work for you.

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