A reverse mortgage, how does it work?
If you are considering taking out a reverse mortgage loan take the time to learn as much as you can about this product.
In a typical mortgage, also known as a “forward mortgage,” you borrow a sum of money and make payments that are applied against your balance due. In this way your debt decreases, increasing the equity in your home.
As its name suggests, a reverse mortgage, or a Home Equity Conversion Mortgage, is the exact opposite. If you have equity in your home that you would like to cash out you can do so with a reverse mortgage without having to make payments against your loan. You borrow the money, your equity decreases and your debt increases. This loan does not have to be repaid until you are ready to leave the home.
Reverse mortgages come with a few restrictions and there are several important things to remember:
To be eligible for a reverse mortgage, the federal government requires that you have discussed the program with a licensed professional.
All owners of the home must be at least 62 years old.
All owners must live in the home at least 6 months out of the year.
If you owe any money against your home currently it will have to be paid off before you can qualify for a reverse mortgage.
The reverse mortgage must be paid back in full when he last owner dies, sells the home or moves from the residence. In the event that the property falls into disrepair or you fail to pay insurance the loan may also come due.
The federal government requires that you consult a professional that is able to advice you before deciding to do a reverse mortgage. While consulting with a professional pay close attention to all of your options and insist upon a calculation to be sure that you will receive enough through the reverse mortgage. A reverse mortgage could prove to be very expensive is taken out inappropriately.
Finally, consider waiting to sign with a reverse mortgage. As the product develops and the program evolves the expense of a reverse mortgage is likely to drop. The longer you can wait to do this the better.
As with most financial decisions consult a professional before making any kind of a decision. This cannot be stressed enough. The last area where you can afford to make a mistake is with anything involving your finances.
