Reverse Mortgage Facts

Is a Reverse Mortgage Right for You?

A reverse mortgage is a type of negative equity loan that allows a homeowner to use part of the equity in their home to receive monthly cash payments. Though there are no restrictions on what the money is used for, it is usually a “loan of last resort” when there is no other monthly income to pay bills. By loan, the reverse mortgage process allows the lender to give the homeowner a cash payment every month rather than the homeowner paying the lender. If the home is sold or the property vacated, the loan is due in full for either the full balance or 95-percent of the appraised value of the home.

The appraisal is based on the home’s current value, not the value it was when the reverse mortgage began. With a reverse mortgage, any other liens on the property must be paid in full and the owner is responsible for all property taxes, homeowner association dues and condo fees, as well as any property maintenance and damages. Reverse mortgages cannot be taken out on second homes, rental or vacation properties, and the borrower must be living in the home as a condition of the loan. The owner maintains title to the property, it is not conveyed to the lender.

Age qualifications

The homeowner must be at least 62 years of age at the time the reverse mortgage is applied. The older the borrower, the more proceeds they can receive.

A borrower’s spouse, if under the age of 62, is required to qualify under a special set of stipulations before the loan is approved. The number of funds available takes into the consideration the age of the homeowner(s), the appraisal value of the home, the interest rate on the loan, and any closing costs paid up front out of the loan proceeds. Older borrowers receive more because the Federal Housing Administration (FHA) expects to pay out less over the life of the loan, so if an 85-year old borrower -for example- owes no money out (has full equity) on a $300,000 home, they may get out $224,000 as opposed to a 62-year old borrower who may get $185,000 on that same value on a home. All calculating figures considered, an older borrower typically has less life expectancy, so they can get more out of the deal because less will be paid out over the term of the loan. Proceeds can usually come out in a lump sum of up to 60-percent and the rest over time, or all payments can be paid out monthly from the start.