If you are considering getting a reverse mortgage, you may be finding the information you see a bit confusing. As with any other big decision, it’s important that all your questions are answered thoroughly before you choose to take out this type of loan. Below are answers to some of the questions consumers often ask about these mortgages.
- What are reverse mortgages? How do they work?
Reverse mortgages are loans that allow homeowners age 62 and older to convert part of their home equity into tax-free income. These loans do not require the homeowner to make monthly payments, sell or give up title to the home.
Like home equity loans, reverse mortgages use the equity that has built up in homes to provide the homeowners with cash. Unlike home equity loans, however, reverse mortgages do not require monthly loan payments.
A reverse mortgage does not become due as long as the home is the primary residence of at least one of the borrowers, with taxes paid and insurance maintained.
- What are the requirements for getting this type of loan?
The main qualification for eligibility is an age requirement; senior homeowners must be at least 62 years old to qualify. There are almost no income or credit requirements. The amount you may borrow depends partly upon the value of your home and how much you currently owe on it.
This type of mortgage is restricted to homes that are the borrowers’ primary residence. Rental properties, second homes, or resort properties are not eligible.
- What happens to a reverse mortgage after the borrower passes away?
A reverse mortgage becomes due when the last surviving borrower passes away, permanently moves out of the home, or does not live in it for twelve consecutive months. At this time, the loan must be repaid in full, including principal, interest charges, and service fees. Proceeds from the sale of the home, other assets from the borrower’s estate, or refinancing may be used to repay the loan.
Equity remaining after the reverse mortgage is repaid belongs to the borrower’s heirs. A reverse mortgage does not affect the other assets of an estate. Additionally, the borrowers or heirs can never owe more than the home’s appraised value when it is sold.
- How do seniors benefit from reverse mortgages?
This type of loan helps senior homeowners stay in their homes and remain independent. By not requiring monthly mortgage payments and providing tax-free income, these mortgages offer financial freedom and flexibility to seniors.