QandAs: Loans

What is a Reverse Mortgage?

Answer:
A reverse mortgage is a home loan available

to elderly homeowners, which allows them to borrow money from their equity. Reverse mortgages are different from other types of home equity loans. In this case, the borrower is only required to repay the loan if they die, sell the property, or permanently move from the residence.

To be eligible for this type of loan, borrowers must be the primary homeowner and be at least 62-years-old. Additionally, mortgage lenders require that all borrowers own their home outright, or have a small mortgage balance. There are many ways to acquire funds from a reverse mortgage. Borrowers can choose to receive a one-time lump payment. Another option is to receive monthly cash advances. Then again, borrowers may choose to setup a line of credit, which lets them determine when and how much they want to borrow.

Several factors determine how much a homeowner can borrow. Lenders take into consideration the borrower's age, present interest rate, and the property's value. Individuals who qualify for a low interest rate and have substantial equity can usually borrow a larger amount. Once the primary homeowners die or sell the home, the proceeds from the home sale or cash from their estate pays off the reverse mortgage.


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