Reverse Mortgages
A reverse mortgage is a loan that is available for homeowners who are over the age of 62 and want to transfer the home equity they’ve built into cash. Initially, the idea behind this loan was to offer people of retirement age a supplemental income to pay for living expenses and health care, but there are no restrictions on how the money must be spent. Typically, the homeowner can convert up to 20% of the home value into a reverse mortgage, but the actual value is assessed on a case by case basis.
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How Does a Reverse Mortgage Work?
With a traditional loan, the homeowner borrows a certain amount and is required to pay the lender back over a designated period. As payments are made, the loan amount decreases, and the homeowner increases their equity in the home. With a reverse mortgage, the lender allows the homeowner to access and cash out a percentage of the equity they have in their home. That money is then distributed back to the homeowner in monthly payments from the lender. Instead of paying monthly interest on the loan, the interest is added onto the remaining balance of the loan.
Quick summary, with a traditional loan – the homeowner makes a payment to the lender every month. With a reverse mortgage, the lender makes a payment to the homeowner every month from equity they have built. The homeowner is still responsible for paying property tax and homeowner’s insurance.
Who Should Consider a Reverse Mortgage?
People over the age of 62 who have significant equity in their homes could benefit from taking advantage of a reverse mortgage. There are no credit variables or income requirements for a reverse mortgage. If the borrower is 62 or older, they will qualify.
There are some nice features that come along with a reverse mortgage. For one, there is no requirement to pay back the loan or even make a monthly payment if the borrower is living in the home and claims this as their primary residence. The borrower will not need to pay back the loan until the home is sold or vacated. For homeowners who have more than 20% equity in their homes and are confident that they can gain a profit that is larger than the sum of their reverse mortgage, this is an attractive option. Reverse mortgages can be confusing and are not always the right option. If you have questions about a reverse mortgage, please call Signature Lending Services at 877-948-2562 so we can help determine if this is right for you.
