Fri. Sep 30th, 2022

What is Reverse Mortgage and How Does It Work?

What is reverse mortgage? A reverse mortgage is a loan given to older people who are 62 years and above. The reverse mortgage allows them to convert a part of equity in their home to cash. Generally, the reverse mortgage is there to aid the retirees with limited revenue using the accrued wealth of their homes, to provide their basic needs and pay health care monthly. This loan is referred to as reverse mortgage because it is the actual opposite of the tradition mortgage process. Here, instead of you making payments to lender every month, the lender makes payment monthly to you.

How it works


As seen above reverse mortgage is a chance given to older Americans to convert equity of their home to real cash. As a person you will face risings such as home repairs, medical expense and the general day to day expense. A reverse mortgage enables the retirees to cater for their needs, access tax free money that they do not have to repay back until they die or sell their homes. There are different categories of reverse mortgage as follows.     

1.     Single purposed reverse mortgage These types of mortgage loans are offered sometimes by state or local governments or nonprofit groups. In this category, the funds are limited to a particular or single purpose like a property tax or a home renovation. This type of loan has low initial cost that is advantageous to the homeowner. For a homeowner to get this loan, he must qualify with specific income restriction.     

2.     Proprietary reverse mortgage
These types of reverse mortgages are connected to private companies that normally maintain possession of the loans. These companies decide which lender to manage the mortgage, with very few qualifying restrictions. The loans come with extensive upfront charges such as credit reports, appraisals, closing cost and originality fees. In this, a monthly fee is charged to cater for any service offered.
3.     Home equity conversion mortgage This is the most popular form of reverse mortgage. The loan is insured by Federal Housing Administration. These loans are guaranteed by the government to comply with the loan promises. Benefits of a reverse mortgage

  1. The loan does not need to be paid back in most cases until when the home has been sold, the owner dies or permanently moves out.
  2. In most cases, there is no restriction to how much money you can use or how you use it.
  3. If your home is primary residence, you are permitted to tap into the home’s equity without repaying the loan.
  4. The payment advance is not taxable and there is no risk of losing medical benefits or social security benefits.

If you want to calculate or compare estimates of two reverse mortgage programs, AARP has a reverse mortgage calculator. The amount of money one gets depends on a number of factors such as location of the house, age of the occupant and how much the home is worth. It is possible to receive the whole amount of money once or you can just get the money once in a month. For most retirees, their homes are their biggest financial assets and attaining a reverse mortgage is a major step. Generally, for you to get a reverse mortgage the home must be your permanent dwelling and you are over 62 years of age. The home must be yours out light and your mortgage should have a minimal balance which you can continue paying with the loan. In most cases where federal is insuring the loan, the home should be two to four units or a single-family home. However, in other states, you may find that even townhouses, manufacturing homes and condos are eligible.

By admin