Reverse Mortgages

Owning a home and building a lifetime’s worth of memories there is something everyone dreams about. However, ownership comes alongside a wealth of financial responsibility, so it’s not without its share of hardships, tough decisions, and compromises by any means. Thank goodness there are programs and options out there available to help give us a little wiggle room should we decide we need it.

Reverse mortgages are just such an option. They allow homeowners the option of withdrawing some of the equity in their homes. It’s a perfect option for senior citizens looking to supplement social security income, people who are faced with unexpected medical bills, and so forth.

How does a reverse mortgage differ from a traditional mortgage?

A reverse mortgage is still very much a home loan in the same way that a standard mortgage is. It differs in that it is a special type of loan that allows you to convert part of the equity you’ve built over years of mortgage payments into cash to help you with living expenses, home repairs, or anything else you may need assistance with.

One major way reverse mortgages differ is in the repayment structure as far as what’s required. The borrower isn’t actually required to repay the reverse mortgage until they either no longer actually use the home as their primary place of residence or they fail in one way or another to meet the agreed upon terms of the original mortgage.

How does a reverse mortgage differ from a second mortgage?

A second mortgage, also known as a home equity line of credit, requires the borrower to meet a specific debt-to-income ratio in order to qualify. You are also required under the terms of a second mortgage to make monthly payments. Reverse mortgages work a little differently. Your ability to qualify isn’t dependent on what your current rate of income is and it actually winds up paying you, as opposed to the other way around.

What affects the amount that I can actually borrow for my second mortgage?

Your income or financial situation actually doesn’t affect what you borrow. However, age does, as does the appraised value of your home, the current interest rate, and other related factors. The general rule of thumb to remember with reverse mortgages is that the older you are, the more you’ll be allowed to borrow. People with more valuable homes will naturally be able to borrow greater amounts as well. In regards to the age stipulation, it’s important to note that if there is more than one person on the mortgage, the age of the youngest borrower will be the one that affects the loan amount the most.

What options do I have in regard to receiving payments?

Those who choose to take out a reverse mortgage have a number of choices as to how they receive their money. Equal monthly payments are available so long as at least one of the people on the mortgage chooses to live in the home as the primary residence. A line of credit can also be issued so that the borrower(s) can draw on the money as needed for living expenses. This type of loan is really very flexible that way.