Are Reverse Mortgage's For You?

A reverse mortgage is a special type of loan used by older Americans to convert the equity in their homes into cash.  The money obtained through a reverse mortgage can provide seniors with the financial security they need to fully enjoy their retirement years.

The reverse mortgage is aptly named because the payment stream is reversed.  Instead of the borrower making monthly payments to a lender, as with a regular first mortgage or home equity loan, a lender makes payments to the borrower.  While a reverse mortgage loan is outstanding, the borrower owns the home and holds title to it and does not make any monthly mortgage payments.

The money from a reverse mortgage can be used for anything: daily living expenses; home repairs and home improvements; medical bills and prescription drugs; payoff of existing debts; education; travel; long term health care; prevention of foreclosure; and other needs. If your home needs physical repairs in order to qualify for a reverse mortgage, a portion of the proceeds will be set aside for this purpose.

You can choose how to receive the money from a reverse mortgage.  The options are: all at once (lump sum); fixed monthly payments ; a line of credit; or a combination of a line of credit and monthly payments.  The most popular option B chosen by more that 60 percent of borrowers B is the line of credit, which allows you to draw the loan proceeds at anytime.

The size of the reverse mortgage that you can get will depend on your age at the time you apply for the loan, the type of reverse mortgage you choose, the value of your home, current interest rates and sometimes where you live.  In general, the older you are and the more valuable your home and the less you owe on your home, the larger the reverse mortgage can be.

In my next post I will discuss the costs involved with a reverse mortgage and the process in obtaining one.