A reverse mortgage allows you to turn the equity in your home into cash. Money from a reverse mortgage can be paid to you as a lump sum, as a regular monthly cash advance, as an open line of credit that allows you to withdraw money as needed, or a combination of any of these payment methods.
Also, your monthly mortgage payments will be eliminated and your obligation to repay the loan will be deferred until your death, the home is sold or you leave the home for a period of 12 consecutive months.
What are the requirements of a reverse mortgage?
The following are the basic reverse mortgage eligibility requirements:
- You and any co-owners of the home must be at least age 62;
- You must live in the home as your primary residence;
- You are not delinquent on any federal debts (such as income taxes);
- The home is in good repair and meets FHA standards; and
- You have enough equity in your home to qualify for the reverse mortgage.
What are the benefits of a reverse mortgage?
- You can tap into your home's equity to get cash to meet your financial needs.
- You can eliminate your current monthly mortgage payments because the current debt on your home is paid off as part of the process.
- There is no income or credit score qualification requirement because the loan is based on your age and the equity in your home.
- If you continue to meet the basic conditions of the loan, you can never be forced to leave or sell your home to pay back the loan.
- If the value of your home decreases, you can never owe more than the value of your home, no matter how long the reverse mortgage balance grows or how long you receive payments.
- If your home increases in value in the future, you may be able to apply for a second reverse mortgage for the additional equity.
What are the drawbacks to obtaining a reverse mortgage?
- High loan costs
- Continued financial obligations of the borrower, including the cost of maintaining the home
- Potential interference with obtaining need based public benefits, such as SSI and Medicaid
- You are still the owner of the home so you will continue to pay the taxes, insurance and maintenance on the home.
- If you decide to sell the home, the loan will be repaid with the proceeds from the sale.