What is a Reverse Mortgage Loan?

By: Brian Ankner

Reverse mortgages have increased in popularity in the past few years. Economist report that due to the increase in housing cost, the amount of money people are saving in their 401(k) and savings accounts have been decreasing.

Due to the recent boom in the real estate market more and more seniors are looking to cash in on their home equity. People are finding themselves equity rich and cash poor. It is not unusual to find people living in million dollar homes yet they are below or near poverty level in monthly income.

Forturnately reverse mortgages are available for this specific reason. Before you proceed with a reverse mortgage do your research and make sure it is exactly what you want to do.

The FHA and the Department of Housing and Urban Development have taken over the responsibility of administrating reverse mortgages.

One of their first changes, was to regulate and control the interest rates which lenders can charge for the reverse mortgages. All reverse mortgage lenders within the United States will have the exact same interest rates. When choosing a lender do not concern yourself with comparing interest rates.

Reverse mortgage interest rates are adjustable rates which are tied to very conservative indexes, usually the 1 year treasury bond rate or the LIBOR index. The rates very moderately and usually will not have much effect on your mortgage.

A reverse mortgage is still a home mortgage utilizing the equity in your home as collateral.

It is totally different mortgage compared to the mortgage you had when you initially purchased your home. Here are a few facts about reverse mortgages.

The Bank Pays You Each Month: Yes, that's right, you will receive a monthly payment with a reverse mortgage. There are basically three options to receiving your payments. You can receive a one time lump sum, you can receive payments at amounts and times you request, and most common meathod is to receive a regular monthly payment.

You Still Live in Your Home: Most seniors do not want to change dwellings at this point in their lives, hence the main reason for a reverse mortgage. You will stay in your home while drawing monthly income against the equity. In fact it is a requirement that you retain this home as your principal residence. You can still have the lake home or the vacation home, you just need to maintain this residence as your primary home.

You Retain 100% Ownership Of Your Home: You will keep all the rights of ownership which you had prior to the reverse mortgage. This is still your home and you can do anything to it or with it that you normally would. It can be remodeled, sold, or will it to your children.

However, should you sell your home or die, you will have to pay back the bank the amount of payments you have received, plus interest, before the balance can be distributed to you or your surviving spouse or the estate.

Your Principal Amount Increases With Each Payment Received: This is still a mortgage and the amount you receive must be paid back. This is usually done when your heirs sell your home after you and your spouse no longer live there. After you pass away the monthly payments will stop, however the principal amount and the maturity date of the loan can not be determined until the actual day the loan is paid back.

You Can Never Owe More Than The Value of Your Home: If you choose a reverse mortgage backed by the Federal Programs, you can never borrow more than the value of your home. You will never be forced to liquidate other assets to repay the loan.

Summary

If you have equity in your home and you are beyond the age of 62, you can receive a reverse mortgage which will provide you the additional monthly income needed to supplement your retirement income. You will still own your home and continue to live there as you do now and your obligations to the lender will be satisfied by the equity in your home.

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