Senior Reverse Mortgage

If you have been hearing news of a unique loan product that allows seniors to convert some of their home equity into cash, you might be wondering how do reverse mortgages work? This is a great question asked by many seniors and their families.

Exactly How Do Reverse Mortgages Work?

A reverse mortgage is a loan that allows homeowners, over 62 years of age, borrow a portion of the equity in their home. The amount an individual can borrow will depend on the value of the home, amount of equity, age, and interest rate. A reverse mortgage can only be taken on a primary residence and must be the only lien against a property. Therefore, to qualify for the loan, seniors must either own their home outright or have enough equity that their reverse mortgage proceeds will cover any existing liens.

Once any liens against the property have been paid, borrowers will receive the remaining proceeds. Seniors can choose to receive their loan proceeds a few different ways. Borrowers can ask to receive a lump sum, monthly payments, a line of credit, or a combination of these options. Reverse mortgage proceeds are tax free and do not affect Medicare or Social Security benefits.

When Do Borrowers Repay Their Reverse Mortgage?

With a reverse mortgage, repayment is deferred until the borrower dies, sells the home, or vacates the property. As long as borrowers keep up with their homeowners insurance, property taxes, and home repairs, they will not be asked to repay the loan as long as they remain in the residence.

Once the loan does become due, borrowers will be expected to repay any proceeds they received, plus interest and applicable fees. In many cases, reverse mortgages are repaid through the sale of the home. Fortunately, because reverse mortgages are non-recourse loans, borrowers cannot owe their lender more than their home is worth. If the home sells for less than the balance of the reverse mortgage, the lender will forgive the remaining balance. On the other hand, if the home is worth more than the balance of the loan, borrowers or their heirs will receive the remaining funds. Once the lender has been repaid, the loan process is complete.

Are you wondering how do reverse mortgages work? For more information on these unique loans, contact our specialists at (877) 267-0274.