What Is Reverse Mortgage?
As you are growing older after retirement, you begin to ponder on how to meet up with a lot of expenses and bills that accrue. People who have a home could consider a reverse mortgage as an alternative. This loan helps in so many ways as it contributes to meeting several financial obligations without putting pressure on the borrower.
What Is a Reverse Mortgage?
A reverse mortgage entitles you to use the equity in your home to cash without the need to make monthly payments of a credit line. It is supported by the Department of Housing and Urban Development (HUD) and the Federal Housing Authority. The real fact about a reverse mortgage is that its proceeds are tax-free.
How It Works
For this type of loan, the home is the asset that has the equity you want to convert to cash. It allows you to tap the value of your home and apply it to meet your financial needs. You can request for it as a single lump payment or monthly installments to fund your retirement, and also as a credit line whenever you need to meet financial needs. There is no limitation on how you can use the money.
You are not to repay the principal as long as you stay in the home. It does not involve monthly repayments. You can end the contract if you so wish by selling the property and use the proceeds to pay back the loan. If you sell the house at a rate higher than the estimated value of the house at the beginning of the reverse mortgage, you keep the extra income. And if the house is sold at a lower rate, you will not be asked to pay the outstanding balance.
Some people have a misconception that the reverse mortgage is meant for only the poor and the desperate seniors; it can be used a strategic financial tool to manage the risks associated with retirement or as additional income. You are, however, advised to evaluate your particular need before going ahead with the procedure.
Meanwhile, the borrower is expected to pay the taxes and insurance on the home, and also keep the home in good condition because that is the only way the lender can recoup the investment in the form of the loan. Any default could make the lender ask for repayment and sale of the house.
Requirements for Getting a Reverse Mortgage
- You must be at least 62 years old.
- The house must be your primary residence.
- There must not be any loan that is being charged against the value of the home. And if there is one, it will be paid by the proceeds of the reverse mortgage.
- The estimated value of the home will be dependent on your age and the balance or liens on the home.
- The principal will be affected by the rate of interest, although it is not a qualifier.
- You must have completed HUD counseling about the reverse mortgage.
- Other requirements that the lender stipulates.
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