Understanding the Reverse Mortgage
July 7th, 2006 Mortgages
For most of us the roof over our heads is our most substantial and valuable asset, and for many people that home is the only item of value they own. For those seniors who are house rich but cash poor, a reverse mortgage can be an excellent solution.
A reverse mortgage is designed to allow eligible homeowners to remain in their homes while receiving a monthly check based on the underlying value of the home and the age of he homeowner. While the holder of the reverse mortgage will ultimately end up owning the home, the homeowner and his or her spouse can never be forced out of the home, providing for additional security and enhancing the value of the reverse mortgage.
The purpose of the reverse mortgage of course is to allow seniors to receive the extra cash they need without having to sell their home. This infusion of cash can help to provide seniors with the financial security they lack and allow them to enjoy their golden years by traveling and doing all the other things they always wanted to do but never good afford.
There are several ways to receive the proceeds of a reverse mortgage, including a lump sum payment, monthly payments for life or even a line of credit. It is also sometimes possible to use a combination of all three methods when taking out a reverse mortgage.
In its simplest terms, a reverse mortgage is simply a mirror image of the traditional mortgage. With a traditional mortgage payments are made to the bank until the loan is paid in full. With a reverse mortgage, in essence the bank pays you in exchange for the eventual ownership of the home. Even after all the equity in the home has been used up, however, the bank cannot force the senior or his or her spouse out of the home. In addition, the homeowner’s children or heirs will have the opportunity to remortgage the home if they want to retain it.
The amount of money that can be derived from a reverse mortgage will vary according to a number of factors, including the value of he home and the age of the homeowners. Each lender will use a formula to determine the value of the lump sum or monthly payments that can be derived from such a deal.
In order to qualify for a reverse mortgage the homeowner must be at least 62 years of age, and they must own a home, either a single family residence, a condo or a town house. The home does not need to be paid off completely, but there must be some equity built up in the home in order to qualify for a reverse mortgage.
One of the requirements of taking out a reverse mortgage is that of counseling, and the applicant is required to meet with an approved counselor to discuss the reverse mortgage and discuss other options for additional income.