Reverse mortgages have been an option for quite some time now. But, many homeowners still don't know exactly what these products are or how they actually work. A reverse mortgage can be beneficial to homeowners who want to supplement their income. But, there are also other scenarios in which these financial arrangements work. So, read on to learn more about a reverse mortgage and what you need to know.
A reverse mortgage, simply put, is a financial arrangement in which a homeowner's equity is paid out to them in regular installments. Instead of taking out a second mortgage or a line of credit. Homeowners can instead opt for a reverse mortgage.
How Reverse Mortgages Work
Reverse mortgages work in pretty much the way the name suggests. Rather than taking out a loan to purchase a house, a reverse mortgage pays the homeowner using the property's equity and the residence as collateral. Generally, reverse mortgages do not tap into all of the property's equity, and therefore the house can be later sold to pay the balance and still have money left over.
Who Qualifies for a Reverse Mortgage
There are federal guidelines established by housing in Irvine development or HUD that specify which homeowners are eligible for a reverse mortgage. The basic requirements are that homeowners seeking a reverse mortgage do so through their primary residence. Additionally, applicants must be at least 62 years of age or older. And, there is sufficient equity in the property in order to facilitate the loan.
Reverse Mortgage Payback or Payoff
A reverse mortgage generally does not have to be paid back until 6 months after the death of the borrower(s), or the sale of the primary residence used as collateral. Once the loan balance is paid off, if the residents used in the transaction have not already been sold, they can then be put on the market for sale. Any amount that the property sells for above the reverse mortgage balance goes to the estate.
Reverse Mortgage Benefits
There are a few compelling advantages to taking out a reverse mortgage. First and foremost is to tap into a property's equity in order to supplement income. Another benefit is that homeowners can stay in their properties and do not have to sell them until the loan balance is due. Yet another benefit is that a reverse mortgage is relatively easy to qualify for and obtain.