A reverse mortgage is a non-recourse loan that increases with the passage of time. This is unlike the conventional mortgage that decrease as time goes on. This explains the”reverse” in the name. These types of mortgages are designed to assist older homeowners who have houses but do not have funds. The idea is for homeowners to be able to borrow money without the need to payback as long as they continue to live in their house.
The monthly interest is added to the principal amount at the end of every month. The homeowner is expected to repay the loan when they move out of the house. There is also the option of selling the house and the sales proceeds go to the mortgage broker.
Requirements for a Reverse Mortgage
There are a number of requirements to be met in order to qualify for a reverse mortgage. They include:
- The borrower and spouse (if married) must be at least 62 years of age
- They must be the owner of their primary residence as the loan security
The amount a client is eligible to borrow is derived by the home value, interest rates, and the age of the homeowner. The older a homeowner, the more the money that can be borrowed as the assumption is that the mortgage will be paid sooner.
Reasons to Consider Reverse Mortgage
There are a number of reasons why a person would want to consider a reverse mortgage, some of which are listed below.
- The borrowers are able to remain independent as the home remains theirs until they decide to leave.
- Sales proceeds from the mortgage are free from tax.
- Payment methods are flexible and can either be lump sums or monthly.
- Homeowners do not need to make any repayments as long as they remain in the house.
- Other benefits are not usually affected by reverse mortgage proceeds.
- The credit rating of the borrower is not very important here as the value of the house is considered more important.
- It helps to unlock the home equity, allowing the homeowners remain in the house.
- Sales proceeds can be used as desired.
- Because they are non-recourse loans, an increase in interest rates or fall in the prices of homes does not necessitate the homeowner getting evicted.
It should be noted that reverse mortgages might not be the ultimate solution, but for persons above the age of 62, it is worth considering.