A reverse mortgage is an interesting idea as you get closer to retirement and are concerned about your finances. Find out what it is, how it can help you and who qualifies.
A reverse mortgage can be a great option for people over the age of 62 because it allows you to convert the equity that has been built up in your home into cash. This cash can go a long way in supplementing your savings account as well as money from social security, and it can make retirement much more pleasant for you.
The money from a reverse mortgage can be taken out in four ways: a lump sum, a line of credit, month by month payments for life or as a combination of all these options.
One of the biggest attractions related to a reverse mortgage is the fact that loan repayment doesn’t have to be done as long as you are alive or until you move out of your house.
1How a Reverse Mortgage Works
Reverse mortgages permit homeowners to borrow from the equity they have accumulated on their home. Rather than make payments to lenders, it is the lenders who make payments to the borrowers. These payments are issued in any of four forms:
• As lump sums
• As monthly payments (as long as the borrower lives in the home)
• Periodically through a line of credit
• As a combination of any of these methods
2Qualification Requirements for Reverse Mortgages
To be eligible for a reverse mortgage you have to be above the age of 62 and be a homeowner, and there has to be a sufficient amount of equity in the home. In as far as this type of loan is concerned:
- You will be required to complete maintenance or repair work
- Your credit history is not a consideration
A reverse mortgage makes it possible for owners of paid-off homes to borrow against their equity and convert it to cash or a stream of income, and do away with their house payments.
3The Cost of Reverse Mortgages
Just like with conventional loans, reverse mortgage borrowers have to pay some fees in order to get the money. It is possible for these fees to be rolled up into the loan and be financed. These fees also vary because there aren’t any set “standard charges” to comply with. Variations are dependent on who the lender is, third-party vendors, and what type of loan has been selected.
As a borrower you basically pay for:
- Mortgage insurance premiums – this insurance will pay for losses incurred by the lender in the event that your house is worth less than the sum owed at the end of your loan
- Monthly lender fees – lenders normally charge borrowers a certain amount to disburse monthly payments to them
- Loan points or application fees – this fee is a percentage to the lender
- Normal closing costs – these are fees to close and they include the charges incurred for recording, ti...