How does a reverse mortgage work?

 

When you decide to get a reverse mortgage, you no longer make monthly mortgage payments. The bank pays YOU instead. You can get this money in a few ways – monthly payments, a lump sum or a line of credit. Your choice. To see how much you qualify for use a reverse mortgage calculator, determine how you would like to receive the money, and compare reverse mortgage offers to get the best deal.

The bank loans you this money based on the current market value of your home. You can stay comfortably in your home for the rest of your life, enjoying supplemental income from a home you spent years paying for.

The loan is eventually repaid – either when the home is sold or when you pass away – this includes the amount borrowed, plus any interest. At that time, the remaining equity belongs to you, your surviving spouse or heirs to your estate.

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What else should I know?

Reverse mortgages can be a great option for seniors with specific economic circumstances while other seniors might do better with another solution. Everyone is different so it’s important to consider the key factors before delving in.

For example, what if you die and your spouse is not listed as a borrower, or has not yet reached the age of 62?

The good news is that under new laws, the surviving spouse is now able to stay in the home for the rest of their life if they choose – even if they are younger than 62. That’s because the loan amount is actually based on the age of the younger spouse even if they are not on the loan itself. This way, if the spouse on the loan passes away, the remaining spouse may stay in the home and enjoy the remaining income without fear of foreclosure.

If don’t plan on staying in your home for a long time, be sure to take a look at the loan origination costs. Those costs are paid upfront and can be costly. So if you think you may relocate, downsize or head to a nursing home in just a few years, you’ll want to consider whether these fees makes sense in the long run.

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Frequently Ask Questions

If you have a question that deals with clients, customers or the public in general, there is bound to be a need for the FAQ page.

You must be a homeowner age 62 years or older. If more than one borrower is named in the loan agreement, the younger or youngest must be at least 62 years.

Generally speaking, the older you are (or the youngest co-borrower is), the greater the benefits you’re going to get. That’s because the lender expects to lend you the money – and maybe pay you an annuity – for a shorter period if you’re older.

Afraid not. Probably most people applying for reverse mortgages own their homes outright. However, if you have a small balance on your existing loan, you can use part of the proceeds of the new one to finish paying it down.

An ordinary mortgage is a long-term loan that helps you buy a home by spreading the cost over years or decades. A reverse mortgage is still a loan, but it lets you access some of the value of your home without your having to move. Typically, the lender will pay you each month rather than you paying the lender, as you would with an ordinary mortgage.

Wiht a reverse mortgage, you don’t make monthly or other regular payments. Instead, those payments will be regularly added to your loan balance and will have to be paid eventually. That normally happens when you die or sell your home.

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