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Reverse Mortgage Explained – Educate Yourself In Minutes

A reverse mortgage is a concept that most people are not aware of. What exactly is a reverse [mortgage]? Well, it’s actually pretty simple. When you go to apply for a traditional home loan from a bank, they require 20% down payment in order to secure the loan. In many cases, this can be hard or impossible for some people depending on their financial situation and current level of savings/income. But with a Reverse Mortgage , there is no such requirement. The bank will provide an amount based on how much equity you have in your property and your age – typically minor amounts up front per month until the full value is reached once you die or move out of the home. What do you mean by “equity”? Equity is essentially how much the property would sell for if you put it up for sale. What happens when I die? What happens when I move out? At this time, you will be required to give back any money that was not used and your heirs will inherit the rest of the value (or none, depending on what you’ve decided).

Financial Support at an Age You Need it Most

Why do people still think that reverse mortgages go against their own interest? Well, simply because they don’t understand how a Reverse Mortgage works and their misconceptions come from information sources that are often times not very credible. A Reverse Mortgage does nothing but provide older/retired people with more financial freedom – allowing them to stay in their homes even after retirement so they can live comfortably without having to worry about home repairs or bills such as electricity, water, etc. Those who believe a reverse mortgage goes against the person’s own interest are simply making a false assumption due to a lack of knowledge before applying for one. What they fail to see is that your Reverse Mortgage only serves as another way to pay for things you cannot already afford – it’s not going to force you to spend extra money on extravagant items/trips/etc., nor will it increase your monthly bills by more than what you’re normally paying now and if anything it should reduce your monthly expenses by providing further income to help offset your existing monthly bills, and if you had any remaining portions left unpaid to your mortgage this will often get factored into the overall offer eliminating those payments as well.

Who are Reverse Mortgages Designed For?

This form of home loan has been around for several decades and has helped countless people stay in their homes even after retirement. What’s wrong with allowing older/retired persons to live comfortably and worry-free? What’s wrong with letting them keep a roof over their heads without having to worry about repairs or bills? What’s wrong with providing more financial freedom to those who cannot afford extravagant items/trips/etc.?

The answer: There is nothing wrong. Reverse Mortgages provide older (or retired) persons with the opportunity to stay in the property they love, while still receiving money for home repairs, bills, or saving up for something big.

The 2 Types of Reverse Mortgages

A reverse mortgage is a loan that allows homeowners aged 62 and over to access the equity in their home. Reverse mortgages are designed to help older Americans stay in their homes, supplement their retirement income, or make home improvements. There are two types of reverse mortgages:

  • Single-purpose loans for certain purposes (like paying off high-interest credit cards)
  • Federally insured Home Equity Conversion Mortgages (HECMs).

Federally insured HECMs can be used for any purpose as long as the money is repaid as a lump sum, as monthly payments lasting more than 12 months, or through a line of credit. An HECM has lower upfront costs than traditional home equity loans because there are no closing costs. When you die, sell your home or permanently move out, the loan becomes due. If the sale of the property doesn’t cover all expenses, lenders can take back what’s owed to them first from any other real estate equity.

~What is a quick claim against your estate and how do you avoid it?~

Once you engage in a reverse mortgage there are certain conditions which must be met on an ongoing basis. Because the lenders whom provided you this loan type use the property as collateral it matters what condition you keep the property in. If you fail to maintain your property (like keeping up with necessary repairs), you might be forced to repay the balance through a quick claim against your estate. Reverse mortgage companies are required by law to offer counseling before giving borrowers money and once every two years afterward. To help seniors weigh their options, counselors stress that loans aren’t magic wands – they don’t just eliminate debt – and that borrowing will have consequences down the road. This video produced for HUD is a good source for questions to ask.

How to Qualify for a Reverse Mortgage

For most of us, becoming seniors means we are starting to think about retirement. How do you plan for this new chapter in your life? How can you make up for lost time? How will you keep yourself entertained and employed enough to keep active but not overworked? How will you pay the bills once retirement kicks in full-time? How will you maintain an income that provides necessities like food, shelter, transportation, insurance premiums and more? This is where a reverse mortgage can come into play for those who were not able to save a large lump sum of cash over the years prior to retirement. Reverse mortgages are designed specifically to help seniors with these issues. They allow elderly homeowners who are “house rich” but “cash poor” turn their homes into stable incomes. These types of loans use the equity on older people’s homes as collateral instead of credit scores which is ideal for these types of borrowers as perfect credit is not always the case for many seniors.

How Much Money Can I Get From a Reverse Mortgage?

Reverse mortgages come in two forms:

  • A lump sum


  • A steady line of credit

How much money you will receive depends on which type you choose. With a line of credit , the amount is limited to how much equity you have in your property. How much cash you get with this option would be based on interest rates at that point in time. If you choose a lump sum this will wind up being determined based on the current value of your home once a lender provided appraisal is carried out. Once the current value has been assessed this will be the starting number, less whatever is currently owed on your existing mortgage and of course usually some form of % fee based on the overall transaction. Although this sounds a lot like simply selling your home it’s not, because unlike an immediate sale your allowed to continue living in your home throughout the rest of your retired life up to some max amount of time that is determined on a case by case basis. Lump sum mortgages are calculated by figuring out what percentage of your home’s value you will be borrowing, then multiplying that number by the total amount you want to borrow.

Commonly Asked Questions to Think About

  • How much money can I get from a reverse mortgage?
  • How is a reverse mortgage different than traditional mortgages?
  • How do I apply for a reverse mortgage?
  • How long does the whole process take?
  • How do I know if this is the right financial solution for me?

Let’s say for example that your home was recently appraised for a total value of $100,000.00. Let’s also assume that when calculating the percentage for this lump sum loan you are borrowing 65 percent of your home’s value, or in other words, $65,000. With this type of loan you would be able to access $65,000 cash right away. It’s important that nobody on your deed currently owes any money to creditors of any kind. If you have your name on the deed and another relative has their name on there as well, then that same person cannot owe anyone any money.

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