You may have heard about this type of loan from friends or commercials on the radio and television, but you may also be confused about what it is and how it may apply to your financial situation. The following is a quick explanation of what a reverse mortgage is.
Why is it called a reverse mortgage?
With a regular mortgage, you borrow money to buy a house, and monthly payments are made until the house is paid off. With a reverse mortgage, a lender gives the homeowner a monthly payment. Although at first it sounds as if the homeowner is getting money for nothing, it is the lender that is buying the house from the homeowner. Each month the lender’s stake in ownership of the house goes up. The homeowner is still living in the house and has exclusive use of the house while he or she is still living.
Who can qualify for this type of loan?
Anyone can qualify for this type of lending program as long as they are 62 years of age or older, and they have equity in their home. It is not necessary to use all of the equity in your home to get a reverse mortgage. Some people only use enough to receive a certain amount of money each month to supplement their retirement income.
How does it work?
You can apply for a loan with any lender that offers a reverse mortgage. The equity in your home will have to be verified. After the loan is finalized, you will begin to receive monthly payments. These payments will last until the day you die or the house is sold.
How does a lender benefit?
The lender will receive all of its money back when the house is sold plus interest. In addition, because these loans are backed up by the federal government, they are not as risky as many other types of loans.
How does a homeowner benefit?
The homeowner benefits by taking advantage of the equity in his or her home without having to move. This is why it is ideal for those who want additional income. They do not have to sell their home in order to get access to their equity, nor do they have to bother getting an equity loan that they will have to pay back in monthly installments.
Depending upon your personal finances, this type of loan may be of help for you in your retirement years. You can get additional Reverse Mortgage Information from a local lender or an online lender that offers this financial product.