A reverse mortgage is a way for senior citizens (age 62 and above) who are homeowners to leverage the equity in their home. In this type of mortgage, homeowners (senior citizens) who have considerable home equity can borrow against the value of their home and receive funds as a lump sum, fixed monthly payment, or line of credit. Unlike a forward mortgage, which is the type used to buy a home.
When is reverse mortgage due for payment some people may ask. Alright, lets jump into it:
Reverse mortgage loans has to be paid back either when you move out of the home or when you die. However, the loan may need to be paid back sooner if the home is no longer your principal residence, you fail to pay your property taxes or homeowners insurance, or do not keep the home in good repair. If you are away for more than 12 consecutive months in a healthcare facility such as a hospital, rehabilitation center, nursing home, or assisted living facility and there is no co-borrower living in the home, anyone living with you will have to move out unless they are able to pay back the loan.
Others may ask questions like “If I have a reverse mortgage loan, will my children be able to keep my home after I die?” Well, here’s the answer you’re looking for:
Upon the death of the borrower, it becomes due and payable. Your children have 30 days from receiving the due and payable notice from the lender to buy the home, sell the home, or turn the home over to the lender to satisfy the mortgage. However, it may be possible for the timeline to be extended up to a year so that your children can sell the home or obtain financing to purchase the home. So, if you plan on leaving your home to your children, it’s important to talk to them now about their repayment options.
If you are a senior citizen and your net worth is tied up mostly to your home equity (your home’s market value minus the amount of any outstanding home loans) and you are in serious need of cash, reverse mortgage can provide you with the much needed cash.
“How does a reverse mortgage works?” that is probably another question on people’s mind, so lets jump into it:
Well, it is very simple and as the name implies “reverse mortgage”, it is just the opposite of a normal or a forward mortgage. With this type of mortgage, instead of the homeowner making payments to the lender, the lender makes payments to the homeowner. As with a forward mortgage, the home is the collateral. When the homeowner moves or dies, the proceeds from the home’s sale go to the lender to repay the reverse mortgage’s principal, interest, mortgage insurance, and fees. Any sale proceeds beyond what was borrowed go to the homeowner (if still living) or the homeowner’s estate (if the homeowner has died).
Types of reverse mortgage:
- LUMP SUM REVERSE MORTGAGE: Is a type of reverse mortgage were the lender gives the borrower all the proceeds at ones.
- EQUAL MONTHLY PAYMENTS: this is a type of reverse mortgage were the lender makes a steady payment to the borrower for as long as the borrower lives in the home as his principal residence.
- TERM PAYMENT: in this type of reverse mortgage, the lender makes a steady sum payment to the borrower for a set period of time, maybe 10 years or so.
- LINE OF CREDIT: In this type of reverse mortgage, money is available for the home owner to borrow as needed and the home owner only pays interest on the amount borrowed from the credit line.
- EQUAL MONTHLY PAYMENTS PLUS A LINE OF CREDIT: in this type of reverse mortgage, the lender provides steady monthly payments for as long as the borrower occupies the home as a principal residence. If the borrower needs more money at any point, they can access the line of credit.
- TERM PAYMENT PLUS A LINE OF CREDIT: in this type of reverse mortgage, the lender gives the borrower equal monthly payments for a set period of the borrower’s choosing, such as 10 years. If the borrower needs more money during or after that term, they can access the line of credit.
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