A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. The amount that you qualify for will depend on the value of your property. Consider contacting your local bank to ask about reverse mortgages. Be sure to tell them that you heard about it from the Property Pro’s web site.
What’s the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or the banks mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don’t make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you “missed your mortgage payment.”
How do I receive my payments from a reverse mortgage?
You have five options depending on the lender:
- 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 months selected.
- Line of Credit: unscheduled payments or in installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted.
- Modified Tenure: combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term: combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
More information can be obtained from Housing & Urban Development (HUD)