How Does A Reverse Mortgage Work?
A reverse mortgage is a special type of home loan that
lets you convert a portion of the equity in your home into cash. The equity that
you built up over years of making mortgage payments can be paid to you. However,
unlike a traditional home equity loan or second mortgage, reverse mortgage
borrowers do not have to repay the reverse mortgage loan until the borrowers no
longer use the home as their principal residence or fail to meet the obligations
of the mortgage. You can also use a reverse mortgage to purchase a primary
residence if you are able to use cash on hand to pay the difference between the
reverse mortgage proceeds and the sales price plus closing costs for the
property you are purchasing.
1. Can I qualify for a reverse mortgage?
To be eligible for a reverse mortgage, you must be a homeowner 62 years of age
or older, own your home outright, or have a low mortgage balance that can be
paid off at closing with proceeds from the reverse loan, and you must live in
the home. You are also required to receive consumer information free or at very
low cost from a reverse mortgage counselor prior to obtaining the loan. You can
find a reverse mortgage counselor online or by phoning (800) 569-4287, or
2. What are the differences between a
reverse mortgage and
a home equity loan?
With a second mortgage, or a home equity line of credit, borrowers must have
adequate income to qualify for the loan, and they make monthly payments on the
principal and interest. A reverse mortgage is different, because it pays you -
there are no monthly principal and interest payments. With a reverse mortgage,
you are required to pay real estate taxes, utilities, and hazard and flood
3. How much money can I get from my home?
The amount you may borrower will depend on:
Age of the youngest borrower
Current interest rate
Lesser of appraised value or the reverse mortgage FHA
mortgage limit of $625,500 or the sales price; and Initial Mortgage Insurance
Premium - your choices are reverse mortgage Standard or reverse mortgage SAVER
You can borrow more with the reverse mortgage Standard
option. In addition, the more valuable your home is, the older you are, and the
lower the interest rate, the more you can borrow. If there is more than one
borrower, the age of the youngest borrower is used to determine the amount you
can borrow. For an estimate of reverse mortgage cash benefits, select the online
calculator from the reverse mortgage Home Page. Many online reverse mortgage
calculators can provide you with an estimate of the amount of funds you can
4. How do I receive my payments?
You can select from five payment plans:
Tenure- equal monthly payments as long as at least one
borrower lives and continues to occupy the property as a principal residence.
Term- equal monthly payments for a fixed period of
Line of Credit- unscheduled payments or in installments,
at times and in an amount of your choosing until the line of credit is
Modified Tenure- combination of line of credit and
scheduled monthly payments for as long as you remain in the home.
Modified Term- combination of line of credit plus
monthly payments for a fixed period of months selected by the borrower.
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