How Does a Reverse Mortgage Work? A Simple to Understand Explanation of the Reverse Mortgage Process

If you’re looking into a reverse mortgage, chances are you’re interested in the immediate cash it can give by releasing the equity in your home. But how does it work? The whole process is relatively simple, but there are a few key points to keep in mind.

First of all, you should note that a reverse mortgage is not a good idea if you still owe a large balance on your regular mortgage. This option should only be considered if you own your home outright (you’re not making mortgage payments anymore), or if you have just a small balance left. If you’ve lived in your home a long time and have finally paid it off, at that point a reverse mortgage is something to consider. Also, in the United States, you must be at least 62 years old to take advantage of this option.

Basically, the amount of equity in your home is converted into cash that can be paid to you in several ways. You can opt for one lump sum, a monthly payment, or a line of credit in which you can withdraw any amount at any time until the credit is exhausted. The money that is given to you must first be used to pay off an existing regular mortgage, if you still have one. Afterward the remaining balance can be used for anything you want.

The biggest benefit of a reverse mortgage is that you don’t have to repay the money as long as you continue to live in the home. The payments are deferred until one of the following happens: 1) You or your surviving spouse pass away; 2) You sell the house; or 3) You move out of the home for longer than 12 months. Once any of these occur, the money from the reverse mortgage must be repaid.

However, you may not personally be responsible for the repayment. Obviously, if you pass away, the debt is passed on to your heirs. The same is true if you move into a retirement home and are incapable of repayment. If you do not plan on repaying the mortgage yourself, you should make sure your heirs or spouse are financially able to take on the debt.

A reverse mortgage is certainly a great way for seniors to take advantage of the equity in their home. We encourage you to look into this option if you are interested in accessing the value in your home.



Source by Kevin P. Thompson

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