Is a Reverse Mortgage Right for You?
A reverse mortgage is a loan of money against the value of your home. Unlike conventional mortgages, you do not have to pay back a reverse mortgage as long as you continue to live in your home. You don't make monthly payments nor do you pay a lump sum payment towards what you owe on the loan until you die or sell your home or permanently move out of your home.
The money you receive from a reverse mortgage can be paid to you in three ways. You can receive monthly payments, a lump sum payment, or a line of credit to be accessed when you choose.
The amount of money you receive from a reverse mortgage is determined by how much your home is worth at the time the reverse mortgage contract is entered into. No matter whether you get your money in monthly payments, a lump sum, or a line of credit, you can never borrow more than what your home is worth.
Even with a reverse mortgage, you must continue to pay real-estate taxes owed on your home and keep your home maintained. If you neglect to do either of those two, the mortgage loan provider can foreclose, seize your home and sell it to get their loan money back.
Despite some similarities that conventional mortgages and reverse mortgages share, there are obviously also some differences. Two of the biggest differences between a conventional mortgage and a reverse mortgage are explained below.
The first difference is that, unlike conventional mortgages, a reverse mortgage does not require you to make payments towards your mortgage loan debt. In a conventional mortgage you must make regular agreed-upon payments and every time you do, you decrease the amount you owe and increase the equity (your interest) in the home. In a reverse mortgage, your debt doesn't get smaller each month; it gets bigger. That's because even though you are not required to make monthly payments, the loan provider is charging you interest each month to keep and use their money.
The second big difference between conventional mortgages and reverse mortgages are what it takes to qualify for each. There are usually quite a few requirements to get a conventional mortgage, most of which have to do with your ability to repay the money you are borrowing. With a reverse mortgage, however, you are not repaying the loan, so you don't have to prove that you can repay the debt. Most providers of reverse mortgage loans have only two requirements to qualify: that you own your home and be at least 62 years of age or older.
The reasons for each of these requirements are obvious. The requirement that you own your home is to ensure that the reverse mortgage loan provider is first in line to receive the equity in your home when you die or permanently leave your home. The reason for the requirement that you be at least 62 is also obvious. That age requirement prevents the mortgage loan provider from having to wait many, many years to be repaid - the older you are, the more likely it is that you will die or permanently leave your home (i.e., move to a relative's home or a nursing home due to declining health).
Reverse mortgages are not right for everyone, but they can certainly free up needed cash for older homeowners without burdening them with debt repayments.
The money you receive from a reverse mortgage can be paid to you in three ways. You can receive monthly payments, a lump sum payment, or a line of credit to be accessed when you choose.
The amount of money you receive from a reverse mortgage is determined by how much your home is worth at the time the reverse mortgage contract is entered into. No matter whether you get your money in monthly payments, a lump sum, or a line of credit, you can never borrow more than what your home is worth.
Even with a reverse mortgage, you must continue to pay real-estate taxes owed on your home and keep your home maintained. If you neglect to do either of those two, the mortgage loan provider can foreclose, seize your home and sell it to get their loan money back.
Despite some similarities that conventional mortgages and reverse mortgages share, there are obviously also some differences. Two of the biggest differences between a conventional mortgage and a reverse mortgage are explained below.
The first difference is that, unlike conventional mortgages, a reverse mortgage does not require you to make payments towards your mortgage loan debt. In a conventional mortgage you must make regular agreed-upon payments and every time you do, you decrease the amount you owe and increase the equity (your interest) in the home. In a reverse mortgage, your debt doesn't get smaller each month; it gets bigger. That's because even though you are not required to make monthly payments, the loan provider is charging you interest each month to keep and use their money.
The second big difference between conventional mortgages and reverse mortgages are what it takes to qualify for each. There are usually quite a few requirements to get a conventional mortgage, most of which have to do with your ability to repay the money you are borrowing. With a reverse mortgage, however, you are not repaying the loan, so you don't have to prove that you can repay the debt. Most providers of reverse mortgage loans have only two requirements to qualify: that you own your home and be at least 62 years of age or older.
The reasons for each of these requirements are obvious. The requirement that you own your home is to ensure that the reverse mortgage loan provider is first in line to receive the equity in your home when you die or permanently leave your home. The reason for the requirement that you be at least 62 is also obvious. That age requirement prevents the mortgage loan provider from having to wait many, many years to be repaid - the older you are, the more likely it is that you will die or permanently leave your home (i.e., move to a relative's home or a nursing home due to declining health).
Reverse mortgages are not right for everyone, but they can certainly free up needed cash for older homeowners without burdening them with debt repayments.
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