Reverse Mortgage Explained

A reverse mortgage is a loan in which a borrower who owns a home and is older than 62, can borrow against the equity in the home. The loan is paid back at the time the house is sold, not monthly, like traditional mortgages.

Benefits

This type of loan can be used to consolidate debt, pay living expenses or to purchase additional real estate. The funds can be given to the borrower via monthly payment, a line of credit or a lump sum.

Warning

A borrower will only be able to borrow a percentage of the home's equity. If a mortgage balance is still owed, that will be paid in full first and then the equity can be used at the borrower's discretion.

Other Uses

Many times, people in their retirement years have paid a mortgage in full but have little savings once large medical expenses are incurred. A reverse mortgage allows the home owner the option of cashing in their equity to finance other expenses.

Fees

A reverse mortgage is more expensive to close than a traditional mortgage. While a traditional mortgage's origination fee is about 1 percent, a reverse mortgage's origination fee is 2 percent.

Qualifications

No credit score or proof of income is required, although date of birth must be verified.

Conditions

Reverse mortgages require you to pay your property taxes and keep home owners insurance. Residents must also keep the home in good repair.

References

• People's Law