Reverse Mortgages 101

Maybe you’ve heard of a reverse mortgage. Maybe you’ve even done some research on them. Or maybe you’re scratching your head wondering what on Earth I’m talking about.

A reverse mortgage is a loan that is available only to senior citizens age 62 or older who own their homes. It is similar to a home equity loan in that it allows the homeowner to borrow against the equity in his home. The difference is in the way it is repaid. A home equity loan requires the borrower to make monthly payments or risk losing his home. A reverse mortgage, on the other hand, requires no repayment until the borrower moves out permanently, sells the home, or dies.

The house is usually sold to repay the reverse mortgage. If you get a reverse mortgage and then sell your home, the mortgage must be paid off. You keep the rest of the money from the sale. If you pass away while still living in the home, the house is sold and any funds remaining after paying off the reverse mortgage are distributed to your estate.

There are several ways that you can receive the proceeds of a reverse mortgage. They can be distributed in a lump sum, in monthly payments, or as a line of credit. You can even combine two of the methods of distribution to suit your needs. This flexibility is a key advantage of reverse mortgages.

There is no income requirement to receive a reverse mortgage. Since you won’t be making any monthly payments, you could have absolutely no income and still qualify for a reverse mortgage. The only requirements are:

• The borrower and any co-borrowers must be 62 years of age or older. If anyone whose name is on the title to the home is under 62, that person’s name must be removed.

• You must have sufficient equity in your home. If you have an existing mortgage, in most cases it must be paid off. This can be done with the proceeds of the reverse mortgage, but it will reduce the amount of funds available to you.

• The housing must qualify. It must be owner-occupied, and have four or fewer units. Some manufactured housing and most cooperative housing does not qualify, but most other houses and condominiums do.

There is no limit to the ways you can use the funds from your reverse mortgage. They can be used to make repairs to your home, pay health care costs, or help cover monthly expenses. You could use them to buy a car or even go on vacation. The flexible payment options facilitate the use of the funds in any way you wish.