Reverse Equity Mortgages

Reverse mortgages have gained popularity in recent years. So how does a reverse mortgage work?

A reverse mortgage, or as it is sometimes called, a reverse equity mortgage, is a type of mortgage that allows homeowners to convert part of the equity in their homes into cash. The equity you’ve built up in your home over the years of payments can be paid to you over a chosen period of time to supplement your income. Reverse equity mortgages are quite different from the normal types of home mortgages. This type of mortgage can be compared to some types of home equity loans or a home equity line of credit.

There are several requirements before a person can qualify for a reverse equity mortgage. Owner must be at least 62 years of age or older. There are no minimum income, medical or credit qualification requirements. However, the homeowner must have already paid off the primary mortgage or will pay the primary mortgage with the proceeds from the reverse mortgage.

There are several options and options for how a reverse mortgage can be paid to the recipient. In general though most people choose one of three types of payment. The recipient can choose to be paid in a lump sum, one-time payment. This is mainly chosen by those who have to pay any primary mortgage that may currently be on the house.

The next type of payment is monthly payments. Most people who choose this type of payment have already paid off the house and just need a little extra income each month to help make ends meet. And the last of the three is a home equity line of credit. People who choose this option usually get enough money each month, but would like a line of credit to cover those unexpected big bills life likes to throw at them. Keep in mind that these are just general ideas, the type of payment you choose will depend on your own wants and needs.

Of course, what is paid in a reverse equity mortgage must be paid back at some point. Here, too, there are several options. There are several factors that go into consideration as to when a reverse mortgage should be paid off. The mortgage is paid upon the death of the homeowner, if the homeowner sells the home, or if the homeowner moves out of the home.

A special note about the last one there, the owner moving out of the house. Some lenders and loans have a set amount of time the homeowner can be away from the home before payment is required. Such absences that could trigger this could be something as small as a winter vacation somewhere warmer or perhaps a stay at a nursing home to recover from an unexpected injury. Be sure to read up and do your homework on it, it could save you a lot of trouble in the future. I hope we have at least answered some of your questions about how a reverse mortgage works.