Reverse mortgage programs allow homeowners to convert part of their home equity into cash and borrow it. So instead of paying a lender, you will receive payments from them instead. Think of it as an advanced payment on your home equity. The payment could be given as a lump sum, periodic advances via a line of credit, monthly while the owner lives in that house, or a combination of the three payment methods.
The exact amount of loan available will depend on the borrower's age, type of loan chosen, and if there is still enough equity left after paying-off existing mortgages. The money received is usually tax-free and does not need to be paid as long as the borrower lives in that house. But when the borrower dies, sells the house, or has moved to another house, the loan will have to be paid.
Qualifications For a Reverse Mortgage
Reverse mortgage programs are not for everyone. Some factors must be met before you can apply for one. First, the borrower must be over the age of 62 and owns a house. Your home should have enough equity to cover all existing mortgages and possible repairs that you may be required to do. Moreover, your FICO scores and credit history will not affect your application for this type of loan.
Things to Consider With a Reverse Mortgage
Before applying for a reverse mortgage, you should know that there are various fees associated with it. Reverse mortgage lenders normally charge an origination fee and service fees over the lifespan of the mortgage. The interest rate for a reverse mortgage is tied to the financial index and change in the market, so it is more than likely that it will increase over time.
Furthermore, a reverse mortgage does not excuse you from paying the other costs related to owning a house, such as property taxes, insurance, utilities, and other maintenance costs.
A reverse mortgage offers many benefits, especially for individuals with low income. It provides them a way to supplement their income or pay for healthcare expenses. However, it comes with various fees that you need to pay. If you are planning to move soon or just borrow a small amount, it would be best to check other options first.