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Reverse Mortgage | Reverse Mortgages

Friday, November 12, 2010 - Article by: reversemortgage mortgage - Reverse Mortgage Helpdesk - Message

Imagine living in your home and making no house payments with a reverse mortgage. Even better, imagine your house is paying you a check each and every month! There are no income or credit requirements either. You just have to be over the age of 62 and have at least 35% equity in your home based on its current appraised value.

One of the most innovative financial tools for homeowners is the reverse mortgage. Although terminology makes it sound like just the opposite of a conventional mortgage, there are several significant differences that make a reverse mortgage very enticing to senior homeowners.

There are some very simple requirements for this special type of mortgage. If more than one homeowner is still living, a reverse mortgage cannot be obtained until the youngest owner is at least 62 years of age. Another requirement relates to the homeowners' equity position. The amount still owed on a conventional mortgage cannot exceed 65% of the value.

When a homeowner applies for a reverse mortgage, there are several ways to distribute the money. The homeowner can mix-and-match their financial payouts to fit their needs. The most common ways to structure reverse mortgages are: receiving a lump sum, equal payments for a fixed number of years, establishing a line of credit, or the most popular, tenure, where the homeowner receives equal monthly payments as long as the homeowner lives in the home.

One reason people are afraid of the idea of a reverse mortgage is because they picture similar terms to a conventional mortgage. Homeowners worry about outliving the payments, and no longer having an income. They worry about dying before receiving payments to equal the amount of their equity. What happens to the equity balance when the homeowner dies? Does the bank profit? Do the homeowners inheritors receive money? Lack of knowledge makes people fear they are gambling with their hard-earned equity. When it took so many years to earn equity, homeowners are reluctant to tap into the funds they have acquired.

If death occurs before the equity in a home is paid out, the inheritors receive the difference in the amount paid out versus the actual equity in the home at time of sale. If the homeowner lives longer, and receives more than the value of the home from the terms of the reverse mortgage, the lender takes a loss, potentially to be reimbursed by the FHA. At no time is the borrower at risk of losing based on the term of the reverse mortgage, giving peace of mind to any seniors considering a reverse mortgage.

Several factors determine the amount of money that can be borrowed against the future sale of the home: the age of the youngest homeowner, the current interest rate, and the appraised value of the property. Although there are limits, the more valuable the home and the older the homeowner when the loan is generated, the higher the payments to the homeowner will be. And the homeowner can stay in their home, paying only taxes, insurance, maintenance and utilities. The equity will be repaid after the owner moves from the home.

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