Understanding Reverse Mortgage Basics
A reverse mortgage is a concept that can be very attractive to the senior community. When you take out a reverse mortgage, the mortgage doesn’t need to be repaid for the entire time that you live in the home. Instead, the mortgage is paid off when the home is sold. But who can qualify for a reverse mortgage and who should actually get one?
Can You Get a Reverse Mortgage?
In order to get a reverse mortgage, all of the owners of the home generally need to be 62 years of age or older and the home must have no other outstanding liens against it. If there are current debts against the home, those debts must be paid off with before you take out the reverse mortgage or with the funds from the reverse mortgage.
How Much Money Can You get?
How much money you get will depend on a number of factors including how much your home is worth, current interest rates, and the current age of the borrowers. The more money your home is worth and the older you are, the more money you’ll get from a reverse mortgage.
Getting the Cash
How you get the money from a reverse mortgage will depend on which option you choose. Some people prefer to take the cash in one lump sum while others prefer to have the money paid to them in monthly installments. Some people choose to have the money as a line of credit, where they draw from the funds when they need to. Still others choose to receive their money in a combination of these ways. The way you receive your funds from your reverse mortgage is generally up to you.
Paying it Back
While reverse mortgages seem like the perfect way to get instant money, that money does need to be paid back eventually. When the last surviving owner of the home either passes away, sells the home or moves from the home permanently, the money needs to be repaid with interest.
What If I Owe More Than My Home is Worth?
Many times the children of people considering a reverse mortgage do not want their parents to take out a reverse mortgage. Sometimes this is because the children erroneously believe that they’ll be stuck footing the bill if the home is worth less than the money that is owed when the reverse mortgage must be paid back.
In actuality, reverse mortgages are usually non-recourse loans. This means that the amount that is paid back at the end of the reverse mortgage will never be more than the amount the home is worth at the time of repayment. That means that the only thing securing the mortgage is the home. Neither you, your other assets or your heirs can be used to repay anything additional to that.