Reverse Mortgage Explained

How A Reverse Mortgage Works

The reverse mortgage is a financial tool geared to help seniors receive additional monthly income or a lump sum. With a reverse mortgage, the borrower never has to make payment. Everyone who is 62 years old or more and owns their home is eligible for a reverse mortgage.

While movie star Robert Wagner makes the reverse mortgage sound very appealing, this product needs to be completely understood by the applicant. On the surface, the reverse mortgage is uncomplicated but it is still a loan that is secured by the applicant's home.

To take advantage of this product, seniors should own the house outright or at least owe a very small amount. These are the standard qualifications the applicant must meet.

• Borrower or borrowers must be no less than 62 years old.
• The borrower must reside in the home.
• All parties on the deed must agree with and sign the loan document.
• All titleholders must comply with the age stipulation.
• The home must have sufficient equity.

Because the reverse mortgage is a loan, there are closing costs. These costs can be for appraisals, attorney fees, recording fees and other items designated by the lender.

Under the new Truth In Lending (TILA) requirements, lenders must issue a full disclosure document that explains all fees linked to the reverse mortgage. The TILA legislation is intended to increase transparency in all loans.

The larger the equity in the house is the bigger the amount of the reverse mortgage. The senior borrower can determine how proceeds from the reverse mortgage will be disbursed. The borrower has 4 options to consider:

• A lump sum paid at closing.
• The equity can be paid in monthly installments.
• The borrower can serve as a line of credit that the homeowner can tap at anytime.
• The borrower can use any combination of the above choices.

The flexibility of the reverse mortgage is very appealing. If the senior vacates the home or moves away, the loan is due in full immediately. If the homeowner cannot issue payment for the full amount, the lender will foreclose on the house and try to sell at auction.

With a reverse mortgage, the borrower must be responsible for tax and insurance payments, including homeowners insurance. If these items are not paid regularly by the homeowner, the lender will consider the owner to be in default and may move toward foreclosure.

Senior borrowers must be prepared to pay then closing costs at the closing. The closing costs must be paid before the homeowner will be allowed to close.

Reverse mortgages are not for all seniors. However, the reverse mortgage has provided very necessary funds to cope with medical conditions or financial disappointments. If you are nervous about what your financial future, you should contact a lender near you.

The closing process takes as much time as a conventional mortgage loan. The decision to utilize a reverse mortgage should not be taken lightly or in the spur of the moment. To make an informed decision about reverse mortgages, ask a local lender about the reverse mortgage. If you are worried about being cash poor in your retirement, the reverse mortgage may be the perfect solution.