To qualify for a reverse mortgage, you must be at least 62 years old and must have a substantial amount of mortgage equity. To get a reverse mortgage, all existing home loans must be canceled. A reverse mortgage is a loan that uses your home as collateral. You can use the profits for anything from supplementing your income to paying off other debts and making a large purchase.
Your home will remain in your name and the income you receive will be tax-free because the money comes from a loan. Plus, no matter how much you owe on a reverse mortgage, you can't owe more than the value of your home (even if your loan balance is higher). A reverse mortgage is a loan, in the sense that it allows an eligible homeowner to borrow money, but it doesn't work the same way as a home purchase loan. A homeowner who is 62 years old or older and has substantial mortgage capital can borrow on the value of their home and receive the funds as a lump sum, a fixed monthly payment, or a line of credit.
Unlike a term mortgage, the type used to buy a home, a reverse mortgage does not require the homeowner to make any loan payments during their lifetime. A reverse mortgage can look a lot like a home equity loan or a home equity line of credit (HELOC). In fact, just like with one of these loans, a reverse mortgage can provide a lump sum or line of credit that you can access as needed, depending on the amount of home you've paid for and the market value of your home. However, unlike a home equity loan or a HELOC, you don't need to have income or good credit to qualify, and you won't make any loan payments while you occupy the home as your primary residence.
Of course, those seniors could still access other types of loans. Unsecured personal loans, for example, can provide a lump sum of cash without using the home as collateral. However, that type of loan would require a monthly repayment. Only a lump sum reverse mortgage (one-time outlay), which provides you with all your income at once when your loan closes, has a fixed interest rate.
The other five options have adjustable interest rates, which makes sense, since you borrow money over many years, not all at once, and interest rates are constantly changing. Variable-rate reverse mortgages are linked to a benchmark index, often the Treasury Constant Maturity Index (CMT). To make matters even more complicated, you can't borrow your entire initial capital limit for the first year if you choose a lump sum or line of credit. Instead, you can borrow up to 60% or more if you use the money to pay your term mortgage.
If you choose a lump sum, the amount you receive in advance is all you will receive. If you choose the line of credit, your line of credit will grow over time, but only if you have unused funds in your line. In either case, you'll usually need at least 50% of equity based on the current value of your home, not what you paid for it to qualify for a reverse mortgage. While these loans may be the easiest to obtain and the fastest to finance, they are also known to attract unscrupulous professionals who use reverse mortgages as an opportunity to swindle unsuspecting seniors out of their home equity.
If you're not sure how to calculate if you can afford these obligations, the licensed invested mortgage professionals from American Advisors Group are available to help. Contact an invested mortgage professional from American Advisors Group and take advantage of the free personal consultation they offer. If you're facing the possibility of foreclosure, have health problems, or have a poor quality of life, a reverse mortgage can be a valuable tool in helping you get the retirement you want. In a conventional mortgage, a person takes out a loan to buy a home and then reimburses the lender over time.
Private reverse mortgages have their own qualification requirements, which vary by lender and loan program. To answer this question, examine the features of the reverse mortgage and determine if you can benefit from what this product offers. However, you can talk to a reverse mortgage advisor even when you're considering applying for a reverse mortgage loan. The income you receive from a reverse mortgage will depend on the lender and your repayment plan.
A reverse mortgage can cost up to several thousand dollars, and usually the amount is much higher than a conventional mortgage or HELOC. Closing reverse mortgage loans requires the payment of any existing mortgage, helping borrowers avoid foreclosure. A detailed conversation with an inverted mortgage counselor will provide you with important information to help you decide if a reverse mortgage loan is right for you. .