Reverse Mortgages
Reverse mortgages (also called home equity conversion loans) are loans designed to enable elderly homeowners to tap their equity without selling their home. With this loan, the borrower receives a lump sum, a monthly payment or a line of credit based on the amount of equity in the home.
There is no repayment on this loan unless the property is sold, the owner moves into a retirement community or dies. When the home is sold or is no longer the owner’s primary residence, the owner or owner’s estate the repays the money received plus interest and any other finance charges.
As a rule, in order to qualify for a reverse mortgage, the borrower must be 62 or older, have little to no mortage on the property and continue to maintain it as their personal residence.
Reverse mortgages work well for retired or elderly individuals that want to tap the equity they’ve built in their homes to meet their current financial needs. Whether the interest rate is fixed or adjustable depends on the program and lender. Monies received from a reverse mortgage are not taxed nor do they affect medicare or social security benefits.
Unlike other mortgages, the lender cannot take over the property if the owner outlives the loan. Additionally, owner’s with reverse mortgages cannot be forced to sell their homes to pay off the loan even if the loan balance ultimately exceeds the property’s value.
To determine if a reverse mortgage is right for you or a family member, talk to a mortgage professional as well as your legal advisor.