What is a Reverse Mortgage?

A reverse mortgage is a lifetime mortgage that is only available to seniors who are 62 years of age and older. The mortgage is used in order to release the equity of a home as one lump sum or in the form of multiple payments. It is a loan agreement that is made between the financial institution and the homeowner whereby the home equity is paid out to the individual but must be repaid once the person passes away or moves from the residence.

A reverse mortgage is a lifetime mortgage that is only available to seniors who are 62 years of age and older. The mortgage is used in order to release the equity of a home as one lump sum or in the form of multiple payments. It is a loan agreement that is made between the financial institution and the homeowner whereby the home equity is paid out to the individual but must be repaid once the person passes away or moves from the residence.

There are a variety of definitions of a reverse mortgage but they are all basically the same. Here is another definition of such a loan. It is defined as “A non-recourse loan that enables borrowers, age 62 and older, to convert a portion of a home’s equity into tax-free funds which can be used to purchase a new primary residence or refinance their current residence with no monthly mortgage payment as long as the home remains their primary residence.” 

In order to qualify for a reverse mortgage, as previously mentioned, the borrower must be 62 years or older. While there is no minimum credit requirements or income requirements for the mortgage there are other requirements that must be satisfied.

In most cases the money that the borrower receives from a reverse mortgage can be used for anything they want to use it for. It is required however that the borrower pay off the existing mortgage he or she has with the money that comes from the reverse mortgage. If you are presently involved in bankruptcy proceedings you may still qualify for the reverse home loan however this will reduce the speed at which the process for the mortgage takes place.

Not all homes qualify for a reverse mortgage. There is other such as mobile homes that have their own special set of requirements. One example of this is that the mobile home must have been built after the year 1976 and must be on an approved permanent foundation.

Before borrowing money for a reverse mortgage it is necessary for applicants to seek out third party financial counseling from a relevant source that has been approved by the Department of Housing and Urban Development (HUD). The counseling is required in order that the applicant and his/her family completely understand what a reverse mortgage is and how it works, as well as how to go about applying for one. The applicant does not want any unwelcome surprises in this regard down the road!

The current lending limit for a reverse mortgage is $625,500. What this means is that this is the maximum that the house can be worth. This amount was increased in 2009. In 2008 it was raised from $200,000 to $417,000. The maximum amount of money that an originator can charge a borrower for a loan origination fee on this type of mortgage is $6,000.

There are five primary factors that determine how much money will be awarded to the borrower. These include the appraised value of the home, the interest rate, the age of the borrower (the older the person is the more money they qualify for), whether the payments will be distributed in a lump sum, on a monthly basis or as a line of credit and finally, the value of the property and whether the value is higher than the national loan limit that is determined by HUD.

Only after weighing the pros and the cons of a reverse mortgage can you decide if it is right for you. Do not make a decision about a reverse mortgage lightly.