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How Does A Reverse Mortgage Work?

In this age of internet, reverse mortgage is not an unheard phrase. However, not everyone is familiar with how reverse mortgage actually works. Those who know inside out of conventional mortgage, reverse mortgage present a polar opposite structure for them. Let us have a hard look at what reverse mortgage is and how it actually works.

Reverse mortgage allows the borrowers to avail monthly pay-off system instead of obliging them to make mortgage payback to the lender. In spite of no obligation to make pay-off to the lender, reverse mortgage is a loan. You need to fulfill some pre-set criteria in order to qualify for reverse mortgage loan. These criteria are enlisted as follows:

  • The minimum age limit must be 62 years to get the loan.
  • You must be residing in the property that is to be mortgaged.
  • The property must be in good condition to provide considerable proceeds.
  • It is better if you have no due on your property loan. Even if there is due, it must be low enough to be paid off from the reverse mortgage proceeds.

The lenders consider a variety of factors to decide how much loan you can receive. The amount of loan largely depends on how much the house is worth. The location of your property, the ongoing market price and equities built up in your house etc. go into determining the estimated value of your house. There are a good number of options to receive reverse mortgage loan. The options are as follows:

  • At-a-time payment in a lump sum format
  • As a series of monthly payout
  • As a line of credit that can be tailored-made according to your specifications
  • Any possible combination of the above stated options

Reverse mortgage is a good package with the best things punched in. The first nice thing is its flexible feature. The loan can be used for any purpose as per your wish. And as long as you are living in the same house, there is no need to worry about payback. However, if you decide to shift, the entire loan is due to the lender. The payback phase kicks off after death of the last applicant.

The lenders have the legal right to foreclose your property if your heirs are unable to pay off the loan. On foreclosure, the lenders auction the property to get back the dues in full including interest. As you retain the title till your last breath (provided you are not going elsewhere), you are obliged to bear the cost for maintenance, tax payment and insurance premium.

Reverse mortgage is a good financial instrument for the senior citizens. With it, they get some peace of mind as there exists a good source of fund that supports them to leave the twilight years happily. Choosing a good lender is also important. And you must understand all rules and regulations while dealing with a reverse mortgage lender.

Peter Christopher

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