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What is a Reverse Mortgage?


What is a Reverse Mortgage?

A reverse mortgage is a home-equity loan for individuals who are over the age of 62 provided by the US Department of Housing and Urban Development. A homeowner may use a reverse mortgage to convert equity into tax-free cash. The homeowner does not have to make a mortgage payment, sell the property, or give up title to their house. The owner retains ownership of the property and its heirs can inherit it when the owner dies. In other words, it's a line of credit.

Why Would I Want a Reverse Mortgage?

These are a few reasons you might explore a reverse mortgage. The loan can be used for any purpose, such as to pay off debts, make home repairs, or cover medical expenses. The loan does not have to be repaid until the borrower vacates the home, sells it, or dies. Reverse mortgages can be a helpful way for seniors to access additional cash in retirement.

Who Can Get a Reverse Mortgage?

If you meet the age and residency requirements, anyone who is at least 62 years old and resides in the home (must be their primary residence) has been approved. The homeowner must have accumulated equity in the property and enough income to cover their essential living expenses, debt repayments, homeowner's insurance premiums, and property taxes. The only other criteria are that your credit history must demonstrate a readiness to pay current debt obligations on time.


What are the Advantages and Disadvantages of a Reverse Mortgage?

The main advantage of a reverse mortgage is that it allows seniors to use the money they have already paid into their home to cover living expenses. The loan does not have to be repaid until the homeowner moves out of the home, sells it, or dies.


The main disadvantage of a reverse mortgage is that it can reduce the amount of equity that the borrower has in their home. This could make it difficult for the borrower to sell their home or leave it to their heirs. Additionally, reverse mortgages typically have higher interest rates than traditional mortgages.


How is a Reverse Mortgage Paid Off?

Once the borrower passes away or moves out of the home, the loan must be paid off. There are 3 options:

1) The home can be sold if the proceeds from the sale can pay off the balance of the loan

2) The estate can pass the property to heirs while keeping it for 95 percent of the appraised value or the remaining mortgage amount.

3) If there is no equity left, those who inherit the property or the estate can give the ownership to lender and walk away


Is a Reverse Mortgage Right for Me?

That depends! Maybe if you're looking for an exemption from mortgage payments, extra cash to live on, or supplemental income. There can be drawbacks, though, so it's vital that you consult with your financial advisor before taking the plunge.


Avance Group; Your Local Mortgage Broker

If you're thinking about getting a reverse mortgage, Avance Group is a local mortgage broker that can help guide you through the process! Call us today at 817.524.6655 to get started!


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