Reverse Mortgages

What is a Reverse Mortgage?

Reverse mortgage loans allow homeowners to turn their home into cash. The best part about these types of mortgages is that borrowers are not required to make any loan payments for as long as they (or their co-owner) are alive and living in the home.

Though rules may vary by lender, eligibility is typically based on age and ownership status. In most cases, you must be at least 62 years old. You must also own your home outright. If you already have a lien on the home, qualifying for reverse mortgages could prove to be very difficult, if not impossible.

The money received from a reverse loan can be paid out in several different ways:

• In a single, lump sum
• As a credit line, allowing you to draw money out as needed
• As a regular or monthly cash advance
• A combination of the options shown above

Regardless of the payout option that you choose, you will not be required to pay any money back until you die, move out of your home, or sell your home.

How Reverse Mortgages Work

Though reverse loans differ from regular mortgages, they do have one thing in common. Both types of loans create debt against your home—they just do it in different ways.

A traditional mortgage, or forward mortgage, allowed you to borrow the money needed to purchase the home you know own. As you made monthly mortgage payments, your debt decreased and your home equity increased. When the mortgage was fully paid, you eliminated your debt and left yourself with a home full of equity.

The amount of equity in your home is the value of your home. This money is yours to spend as you see fit. A reverse mortgage allows you to borrow this money, just as you would with a home equity loan. But, you don’t have to pay it back unless you die or permanently leave the property.

The amount that has to be paid off should you no longer reside in the home will depend on how much the home is worth at the time. If your home increased in value as fast as you spent money, you may owe nothing. If the home did not increase in value, or if you spent money faster than your home appreciated, there will be a final amount owed at the time of your death or at the time of sale.

Qualifying for a Mortgage

Qualifying for reverse mortgages is often easier than qualifying for new mortgages. With regular loans, lenders use the borrower’s income to determine whether or not the borrower can afford the home. But with a reverse loan, income doesn’t matter. There will never be any mortgage payments to make, so there is no point in verifying income.

Even if your income is non-existent, you should qualify for a reverse mortgage. You will only have to meet the standard requirements:

• You must be 62 years of age or older
• You must own your home

A Final Note

If you are a senior, or know a senior family member who is going through difficult times financially, a reverse home loan is one potential option. This choice allows homeowners to remain in their home and borrow against the investment made in younger years.

To learn more about how reverse mortgages work, contact a mortgage lender or visit the AARP online at http://www.aarp.org.