Reverse Mortgage
What Is a Reverse Mortgage?
- Exactly what is a reverse mortgage? A reverse mortgage is a safe and easy way for seniors to turn their home’s equity into an additional source of income to meet any financial need. Most financial planners view it as a liquidity tool that unlocks tax free premium dollars. It is a loan that is available to homeowners who are at least 62 years of age and who have a substantial amount of equity in their home. Unlike traditional home equity loans, the reverse mortgage has no income or credit qualifications and no repayment of any kind until the home is sold or the borrower permanently leaves their primary residence. Proceed payment options are in the form of a lump sum, monthly payments, line of credit or a combination of these options.
How a Reverse Mortgage Works
- How reverse mortgage lenders determine what a borrower can receive in terms of proceeds is based upon three primary factors; their age, value of home and current interest rates. To qualify for the reverse mortgage, borrowers need to be at least 62 years of age and have substantial equity in their home. Generally speaking, because this is an actuarially based product, the younger the borrower, the less money they are eligible to receive and in contrast, the older the borrower, the more money they are eligible to receive. Loan is repaid at death or upon moving from the home and the amount repaid is the principal, accrued interest (which is tax-deductible at repayment) and if applicable, a premium.
Common Misconceptions about Reverse Mortgages
“The lender takes the house”
- Homeowner retains full ownership
- Reverse Mortgage is just a loan
“I can be thrown out of my home”
- Homeowner can stay in home until loan maturity event occurs (Sale of home, move out of home, borrower passes away)
“I can owe more than my home is worth”
- Homeowner can never owe more than value of home
“My heirs will be against it”
- Experience demonstrates heirs are in favor of Reverse Mortgages
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