What Is a Reverse Mortgage

• A reverse mortgage enables the homeowner to access their home equity without having to make monthly payments. The proceeds are always tax-free. A homeowner can refinance into a reverse mortgage and eliminate their mortgage payment, get a cash lump sum, a line of credit, a monthly annuity, or a combination of  the above options. This loan can also be used to purchase a home as well.

The easiest way to understand a reverse mortgage is to imagine a regular mortgage with the flexibility of not making your monthly payment. The mortgage interest simply gets added to the back of the loan. This is the basic concept of a reverse mortgage. what is a reverse mortgage

• The most popular and safest reverse mortgage is called the HECM or Home Equity Conversion Mortgage. It is back by the federal government and offers substantial regulations that protect the consumer from predatory lending.

• To be eligible for a reverse mortgage you must be at least 62 years old and occupy the home as your primary residence(for most of the year). The amount that can be borrowed will fluctuate depending on age and home value.

• As we mentioned earlier, even though monthly mortgage payments will be eliminated, this is still a mortgage and the interest payments that are not being made anymore will be added to the principal balance. In result, the loan balance will slowly rise through out the years. There will never be any payments and the loan only needs to be paid back when the last homeowner leaves the home. It’s important to understand that the borrower is always allowed to make payments if they choose to do so.

• Both, fixed and adjustable rates are available. Adjustable rates are usually lower than fixed rates but will fluctuate with the market. A fixed rate is usually the safest option but the HECM cap5/cap10 adjustable programs can offer more flexible terms and the ability to access more equity.