Reverse Loans & Mortgages

Reverse mortgages were created in order to help ease the financial burden on aging seniors. A reverse mortgage is a type of financial instrument that permits home owners over the age of 62 to gain access to the money they have accumulated as home equity.

How a reverse mortgage works is that the lender makes payments to the borrower, rather than the other way around. The amount paid out is based on a percent of the equity remaining in the home (that's the full property value minus the amount still owed).

Seniors can use money to fund:

* retirement;
* medical costs;
* a new car;
* home repairs;
* renovations;
* estate planning;
* a grandchild's education;
* travel and leisure;

In order to get a reverse mortgage your current mortgage does not need to be completely paid off. The amount you can receive is based on the equity in your home. As a mandatory part of the process, however, your existing mortgages will be paid off. Some people simply use a reverse mortgage to get out of having to pay monthly mortgage payments, the money they receive just being a bonus.

When you receive a reverse mortgage, your home remains in your name, and you retain total control of the property. It is also still your responsibility to maintain the house and property and pay all taxes and insurance as usual. No lender can take your home away from you so long as you keep that home as your primary residence.

If, however, all owners of the home (all names on the title and mortgage), leave their home permanently for any reason (including illness) the loan is then due and payable. This does not apply to extended hospital stays or vacations. Any absence lasting longer than 1 year simply needs to discuss the situation with their lender.

With a reverse mortgage there are several ways you can receive your money:

* one lump sum;
* regular monthly payments;
* a line of credit;
* any combination of the above.

Reverse mortgages do not affect your Social Security, nor do they affect your Medicare. SSI, however, may be affected depending on the terms of the specific loan program in question.
To qualify for there are no:
* credit requirements;
* income requirements;
* loan repayment requirement provided you remain in the home as your primary residence.

There can, however, be significant expenses associated with getting a reverse mortgage, though the majority of these costs can be financed into the reverse mortgage.

With a reverse mortgage, after your death, your estate will not be responsible for owing anything remaining on the mortgage balance. Some programs even allow you to set aside a portion of the value in your home to be protected and passed along with your estate when you pass. As a holder of a reverse mortgage, you are permitted to sell your home, the proceeds simply going to pay off the reverse mortgage before any funds find their way into your pocket.

1. The lender will own my home if I take out a Reverse Mortgage.

- Not true. The homeowner retains title to their home throughout the life of the Reverse Mortgage.

2. My heirs will be responsible for repayment of the Reverse Mortgage.

- False. The Reverse Mortgage is a non-recourse loan. The lender can only look for repayment from the sale of the property, although the repayment may be made from any other source and your heirs may keep the home. The lender cannot look to the estate for repayment of the loan.

3. Your home must be debt free to qualify for a Reverse Mortgage.

- Not correct. You may have a mortgage or other debt on your home. The mortgage or debt however, must be paid off first with the proceeds of the reverse mortgage.

4. Only those with excellent credit, income and/or health can qualify.

- Also incorrect. There are no credit, income or health requirements for a Reverse Mortgage. The only requirements are that you be at least 62 years of age, that the home be your primary residence and that you have equity in the home.

5. I will need to make monthly payments on the Reverse Mortgage.

- False. The homeowner is only responsible for paying the taxes, insurance and upkeep of the home.

6. As long as the home is your primary residence you will never have to make a payment.

- Only the "cash poor" or desperate senior citizens can benefit from the Reverse Mortgage.
Even though some seniors may have a greater need than others for the cash or monthly income, the Reverse Mortgage can also be an excellent financial or estate planning tool.

Reverse Mortgages For Dummies