Most of us have heard of the concept of a reverse mortgage as a means of getting finance, yet few actually know the gritty details. A reverse mortgage is a type of loan in which you get money against your home’s equity. This is a great option for anyone who never plans to leave their current home and also does not have any plans of passing on their property as inheritance.
Most reverse mortgages come with clauses that state that the loan amount should never exceed the house equity. This is to ensure a smooth payback of the borrowed amount. However, market fluctuations are unpredictable. Given below are answers to some common questions asked about reverse mortgage.
1. How do you get the funds?
The money of a reverse mortgage can be taken as a single lump sum amount or in the form of money payments. The monthly payments can be set for a fixed number of years. For instance, some people choose to set their reverse mortgage payments for a period of 10 to 15 years. This can be increased also. Finally, one last method to get funds is in the form of a line of credit that allows you to take out the money when required.
Some borrowers choose to get more than a single method of payment. For instance, a borrower may choose to get a part of the reverse mortgage in a lump sum and the rest of it as a line of credit to be accessed only when required by them.
2. Who can apply for a reverse mortgage?
The facility of a reverse mortgage is made available to homeowners in the country who are 62 years of age or older. These loans do not need to be repaid until the original borrower moves out of the house or dies. For this reason, solid proof needs to be given each year that the borrower still occupies the house.
3. How is a reverse mortgage paid?
This is the most commonly asked question about a reverse mortgage. In most cases, a reverse mortgage has to be paid when the borrower dies. In this case, the house is sold and the money goes towards repaying the loan.
There are also many situations in which the borrower may still be alive and decide to move out of the home. In this case too the house can be sold and the proceeds go towards paying the loan. If the amount due for the reverse mortgage is less than that of the sale value of the home, the borrower is most definitely allowed to keep the profit.
In few cases, a reverse mortgage will become due when the owner fails to pay their taxes. Sometimes, if the heirs decide to keep the house for sentimental reasons, they need to still clear the reverse mortgage amount.