What Is A Reverse Mortgage?

A reverse mortgage is a loan for people who live in the United States, who are 62 or older and are looking to convert their home equity into cash.  All the while, they are able to retain ownership of their house and can continue to live in it.  Payments are put on hold until after the person is no longer living in the house. 
A reverse loan gets its name from the simple fact the loan is reversed.  In a traditional loan, the homeowner makes monthly payments to a lending company.  However, in a reverse loan, the lending company makes payments to the homeowner.

There are several payment plan options.  As a homeowner, you can choose to receive the reverse mortgage in one large lump sum.  Another option is to receive the money in monthly payments for a fixed amount of time or as long as you reside in the house.  You may also receive the loan as a line of credit or any combination of the above.

In order to calculate how much money you are eligible for, you must take into consideration your age.  If a husband and wife are looking to get a reverse mortgage, the age of the youngest spouse is used.  Along with your age, the home appraisal value, lending limit for your area and current interest rates are all used to calculate how much money you will receive.  As a general rule of thumb, the more valuable your home is and the older you are, the more money you qualify for. 

Although you may currently have a traditional mortgage, you may qualify for a reverse mortgage.  However, in order to receive the reverse mortgage, you must pay off any and all existing mortgages.  You can use the money from the reverse mortgage to pay off the other mortgage or you can use money from family and friends or even money from your savings. 

In most instances you will be charged a monthly service fee, averaging around $30.  This money is used to manage your account once the loan has closed.  The service fee can cost upwards of several thousand dollars, but is not considered a closing fee. 

You must repay the loan once you move out of the house.  Whether you sell the house or pass away, you must then repay the loan.  The amount of the loan can never surpass the value of the house. However, if you sell the house and the profit is greater than the loan amount, the difference is refunded to either you or your estate.
If you plan to only keep your home for a couple of years, you may want to consider another alternative  Because of the fees associate with the loan, it is often better to consider a home equity loan, grant or no interest loan.  

If you are 62 or older and looking to turn your home equity into cash, a reverse mortgage may be the way to.