Reverse Mortgage Definition

What’s a reverse mortgage?

Answer:

A reverse mortgage is a type of loan that enables older homeowners to borrow from the equity in their property.

It is labeled a “reverse” mortgage because instead of making payments to the lender, you get money from the loan provider. The funds you receive and the interest charged on the loan add to the balance of the loan monthly. Over time, the loan balance increases. Since home equity is the value of your property minus any loans, you will have less equity in your property as the loan balance increases, that may become a problem should you ever want or need to move.

The majority of reverse mortgages generally known as Home Equity Conversion Mortgages (HECMs). The Federal Housing Administration (FHA), a divisions of the Department of Housing and Urban Development (HUD), insures HECMs.

To be qualified for a HECM:

You need to be at least 62 years old.
Your home must be your primary residence.
You have to own your property outright, or have a low mortgage balance which could be paid off at closing with funds from the reverse house loan. You’ll find limits to how much cash you’ll be able to borrow. So, should you still owe a lot of money on your traditional mortgage, you may not be qualified for a reverse mortgage.
You really should have the funds to cover continuous property charges which include taxes and insurance protection, along with repair and maintenance costs.
You also need to speak with a HUD-approved counselor to discuss your eligibility, the financial implications of the mortgage, and other loan options.

If you or your parents are considering a reverse mortgage, get all the facts first. We’ve got various sources to help you learn more about reverse mortgages.

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