Getting older is not always a cruel thing, particularly when you are in need of money!

Now if you are 62 years old and need cash to finance home improvement, pay off debts, supplement your retirement income, fund your children or grandchildren’s education, or pay for health care expenses – it’s time to consider reverse mortgages for financing!

Overview

Reverse mortgages are a kind of lifetime mortgage, which allows seniors aged 62 and more to convert part of their equity in homes into cash. These loans are called reverse mortgages as the traditional mortgage payment stream is reversed – in a reverse mortgage, the lender makes the payments to the borrowers!

The idea of reverse mortgages is to enable people who are in or close to retirement and with limited income to take advantage of the equity in their homes to pay off current debts or mortgages, cover everyday expenses, or finance health care or medical costs. Homeowners (or borrowers) are able to draw a lump sum of mortgage principal, or receive monthly payments over a specified term as a revolving line of credit. The loan is not required to be paid off as long as borrowers still use the house as their primary residence.

Eligibility

In the US, to be eligible for a reverse mortgage, the applicants must be at least 62 years old. The one with the spouse younger than 62 may also secure a reverse mortgage, but the name of the younger spouse will come off the title. There is no minimum income or credit requirements on borrowers for no payments are made on the mortgage.

Besides the age qualification, a reverse mortgage must be the primary line on your home. Any prior mortgage loans should be paid off before acquiring a reverse mortgage. It is noted that you can use the reverse mortgage proceeds to help pay off the existing loans. Though no payments are required, borrowers must ensure that the real estate taxes, home insurance and other applicable fees are always kept current. Otherwise, it would result in a default on the reverse mortgage.

In a reverse mortgage, homeowners always remain the tile to or the ownership of the property. The lenders will never, in any cases, own the home even after the last surviving spouse permanently moves out of the house.

Features

Once a reverse mortgage is established, there are no specific requirements on how these funds are used, and the proceeds generated from the loan are not subject to income tax payment. The money can be either delivered to the borrowers in a lump sum, or as a line of credit, or as fixed monthly payment over a period of time or as long as you use the home as the primary residence. You can also combine these options together, for instance, you can withdraw part of the proceeds as a lump sum and take the balance in a line of credit.

The amount of proceeds from a reverse mortgage depends on the following factors: the age of the borrower, the value of the home, the interest rates and upfront costs. The fact is that the older you get, the more money you can expect from a reverse mortgage. The fees, generally for the appraisal and maybe counseling services, will be several hundred dollars and can be paid out of your loan proceeds, which means you just need to carry very little out-of-pocket expense for a reverse mortgage.

In most cases, the borrowers’ final loan balance will include the amount borrowed, as well as annual mortgage insurance premiums, service fees and interest, and the balance grows as you live in the home. That is to say, if you sell or vacate the house, you will owe more than the amount you originally borrowed. However, no matter how large your loan balance is, you don’t have to pay more than the appraised value of the home or the sale price, because in the event that the loan balance exceeds the real value of your home, the federal government will pay for that loss.

Foreclosures

As reverse mortgages don’t require borrowers to make payments, foreclosure rarely comes into play. However, occasions do exist! Before a reverse mortgage is on the edge of foreclosure, the loan must come due and has to be repaid. The lender will stop make payments to the borrower and freeze any funds in the line of credit. Here are 5 typical possibilities that make a reverse mortgage due:

1. The borrower sells the house
2. The borrower vacates the house for more than 12 consecutive months
3. The borrower dies
4. The borrower is unable or unwilling to pay property taxes or home insurance
5. The borrower refuses to or can not make necessary repairs to the property

Before any foreclosure practice, the lender will send a repayment notice to the borrower, informing him/her that the loan is now due and should be repaid. If the borrower fails to repay the amount financed, foreclosure will come into action in one or two months. Thereafter, the borrower and the heirs will have no more claims on the house or the equity in the property.