Reverse Mortgages in a Nutshell

By Susan M. Keenan

Reverse mortgages have become increasingly popular over the last few decades, particularly with senior citizens who are no longer working. Acquiring a reverse mortgage can provide relief from financial difficulties without incurring a monthly payment. Reverse mortgages simply use the equity that the homeowner has built up in his home as collateral for the loan.

Requirements needed in order to take out a reverse mortgage:

• The applicant must be 62 years of age.
• The applicant must own the home being used as equity.
• The applicant must live in the home as a primary residence.

Benefits of a reverse mortgage:

• An additional supply of money is made available to the homeowner.
• No payments are necessary until certain conditions have been met.

Conditions needed to incorporate repayment of the loan:

• The homeowner dies.
• The homeowner sells the home.
• The home is no longer used as a primary residence.

There are three main types of reverse mortgages: a Proprietary Reverse Mortgage, a Home Equity Conversion Mortgage, and a Single Purpose Mortgage.

Fast facts for the Proprietary Reverse Mortgage:

• A private company creates this type of reverse mortgage.
• The private company backs this private loan.
• The costs are generally higher than with other loans.
• Greater payoff costs might occur as well.

Fast facts for the Home Equity Conversion Mortgage:

• This type of loan is federally insured.
• No medical or income restrictions are placed on this loan.
• The money acquired may be used for any purpose.
• Start up costs are generally much higher.

Fast facts for the Single Purpose Mortgage:

• Availability is limited.
• They are provided by governmental or non-profit agencies.
• Only low or very moderate incomes qualify.
• Acceptable uses are restricted to a one-time use such as, home repairs and taxes.
• Low costs are associated with this type of reverse mortgage.

Reasons to take out a reverse mortgage:

• Money is needed to pay medical expenses.
• Necessary repairs to the home need to be financed.
• The applicant has insufficient retirement income.

Factors that play a role in determining the loan amount:

• The amount of the home’s equity
• The age of the applicant.
• The appraised value of the home.
• The area in which the home is located.
• The current interest rates.

A reverse mortgage can be a solution to financial difficulties for senior citizens if the required conditions have been met. Homeowners thinking about this type of loan should thoroughly investigate the particular one that they are considering. All available options should be considered prior to the final commitment.

 

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