An Intro to Reverse Mortgages

Posted by  on Apr 16, 2009
A mortgage is a loan that creates debt against a home, but while a traditional mortgage creates a large debt all at once, which is then paid down over time until you own your home; a reverse mortgage does not need to be paid back for as long as you live in your home. This can be a great way to get some extra cash out of the house that you own which has built up equity over time.

To qualify for a reverse mortgage, you must be at least 62 years of age, and you must live in the home which you are mortgaging. If you meet these qualifications, then you can place your home up for a reverse mortgage, which can be paid in several ways. One way is to pay a lump sum to you. You can also arrange for a certain amount in a monthly payment or for a credit line from which you can draw at need up to the value of the loan entire. You an also use any combination of these payment options if you would prefer to mix them, taking a certain lump sum to get started, for example, and then getting monthly payments for the rest of the balance.

One thing that you need for most any kind of loan is some form of income by which to pay back your loan, however with a reverse mortgage, the balance of your loan is not due until you pass away, move out of your home, or sell your home. This means that you do not need any kind of income at all to qualify for a reverse mortgage. One thing you do need, however, is to own your home free and clear or to be able to pay off what small remaining balance there might be (most reverse mortgage lenders will let you pay back a small remaining mortgage with your reverse mortgage, but you MUST do so).

If you do own your home and meet the age and residency requirements, then you might be eligible for a reverse mortgage. You do not need to make monthly payments to these kinds of loans. Because of this, there is no risk of losing your home because of missing a payment — a benefit that most people can appreciate, especially if they do not have a source of income from which to draw if they are forced to move out of their home.

In fact, reverse mortgages operate in the opposite fashion, offering a home owner the money that they need up to the balance of the value of the home. Reverse mortgages are also known as “rising debt, falling equity” loans or just “rising debt loans” because instead of paying down a loan balance, you are actually increasing your debt each month through your monthly payments and/or your increasing interest. All this while, the equity in your home is falling due to the increasing debt; however this is what informed reverse mortgage holders want.

If you do not have anyone to inherit your home when you are gone, then it is a pity if you do not get to enjoy all the money that you put into your house over the years. A reverse mortgage allows you to borrow up to the value of the home and enjoy the money that you borrow, going on vacations or otherwise spending it as you choose. When you pass away, your home will be sold by your estate to pay back the reverse mortgage in full. In some cases there will be money left over, in some cases not, however this is a great way to ensure that you get all you can out of your home without leaving your estate or your heirs, if any, in debt.

If you like the idea of spending your time and money as you choose in your golden years and you own your own home, a reverse mortgage is the perfect way to go. Consider, however, that you will not be able to pass your home on to your heirs since in most cases they will have to sell your home in order to pay the reverse mortgage off all at once as is required with this kind of loan.

Keep in mind, also, that a reverse mortgage will also come due when you move, so if you do not want to have a lack of funds for a down payment on a new home or even just cash to spend as you choose when you leave your existing home, then you should not borrow the full amount of the value of your home.


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