Perhaps you know what a mortgage is. A mortgage exists when a loan is taken out from a bank or another mortgage company for the purpose of purchasing a home. Payments are made to pay back the loan on a monthly basis. But what is a reverse mortgage? In most circumstances, reverse mortgages are offered to homeowners sixty-two years of age or older. The title "reverse mortgage" is appropriate as the flow of the mortgage is flipped around in the other direction. In a mortgage, as mentioned above, the homeowner pays the bank monthly payments. In a reverse mortgage, however, the lender makes payments to the homeowner.
The payments that are made by bank are based on a home's equity with the goal of equity conversion. So what can people use these funds for? There are no restrictions on what the homeowners can use these funds for. People use reverse mortgages to supplement retirement funds, upgrade houses, take vacations, pay off other debts or, in worse case scenarios, preventing foreclosures.
There are several different types of reverse mortgages and many different companies who offer reverse mortgages. These include Home Equity Conversion Mortgage, Fannie Mae Home Keeper, Financial Freedom Cash Account, and finally CHIP Reverse Mortgage for Seniors. Regardless of the option that you choose, you must first experience counseling as a mandatory part of the process. The counselor will be there to explain more thoroughly the options and answer any questions you may have.
So what are the payment options and when do you have to pay them back? There are a couple of ways that you can receive reverse mortgage payments. Some chose fixed monthly payments, a lump sum, or a combination of the two. The payback on a reverse mortgage begins when you no longer live in the home upon which the reverse mortgage is taken. The payback will often begin after a family moves out or passes away. According to the National Reverse Mortgage Lenders Association, someone using a reverse mortgage will never owe more than what the property is worth.
