What Is a Reverse Mortgage?

Reverse mortgages were created as a way to provide homeowners with a means of financial aid – specifically, older homeowners. The first FHA-insured reverse mortgage was developed back in 1989. Basically, it allows you to access the home equity that you have built up into your home and defer your mortgage payments until you either sell the house, move out of the house or die.

By taking out a reverse mortgage, you will still be responsible for paying property taxes as well as homeowners insurance. You’ll no longer have to pay home mortgage payments, but the interest will still be added to the balance of the loan every month. In fact, your loan balance can eventually grow to exceed the home’s value.

The Benefits of a Reverse Mortgage

The following are the benefits of taking out a reverse mortgage on your home:

  • You remain the owner – The lender does not take ownership of the home as long as you pay your taxes and insurance, and as long as you comply with the reverse mortgage’s terms.
  • You’ll no longer have to make monthly payments – Not only do you no longer have to pay off your mortgage every month, but the mortgage payments will be made to you. Once you sell the home, you’ll pay off the money that was given to you.
  • Reverse mortgages are protected by the federal government – This means that you will be protected in the event that the housing market declines. If your reverse mortgage loan ends up becoming more than the value of the house when it is sold, then the government will cover the difference.
  • You can be paid in a number of ways – Funds are dispersed via a line of credit, in full amounts, in partial amounts, in monthly payments or in any combination of these options.

The Drawbacks of a Reverse Mortgage

As many benefits as there are for taking out a reverse mortgage, you should understand what the potential drawbacks are as well. These include the following:

  • Your heirs won’t get the house – Since the reverse mortgage loan is paid off when you sell the house, your heirs won’t get it even if you die. If you die, the lender will sell the house to cover the loan.
  • You’ll have to repay the loan if you move – You’re stuck in the house unless you can repay the loan. As soon as you move out, you’ll be required to pay.
  • High interest rates – Reverse mortgage interest rates are typically higher than standard home equity loans.

Qualifying for a Reverse Mortgage

  • You need to be at least 62 years old.
  • You must either own your home completely or have a small mortgage balance.
  • Your home must be your principal residence.
  • You must go through mortgage counseling.

A reverse mortgage can be extremely helpful if you are over the age of 62 and you are in need of some financial help For more information about reverse mortgages, or mortgages in general, contact Alex Echeandia today.

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