A reverse mortgage is a loan from a financial institution that is specifically for seniors who are also homeowners. They are about to use a portion of the home’s equity, or value, as collateral against that loan. Typically the loan does not need to be repaid until the homeowner permanently moves out of the property or succumbs to death. The homeowner will usually defer repayment of that loan until he/she sells the home or dies. Typically once the homeowner is deceased the remaining relatives, or heirs, give up ownership of the home. In certain situations they may be able to refinance in order to buy the title from the mortgage company.
To qualify you must be at least 62 years of age, and the home must be your primary residence. Also, if you currently have a mortgage it must be low enough to be covered by the amount of the reverse mortgage. The FHA (or Federal Housing Administration) has guidelines set up for eligibility, which include standards for the types of property.
Before even starting the process the borrower must attend a mandatory counseling, which is set up to protect the borrower. Three kinds of reverse mortgages are currently available on the market: proprietary, conversion, and single-purpose.
A single-purpose mortgage is usually issued by government agencies or, in some cases, nonprofit organizations. This type is hands down the cheapest of the three. However, the organization usually requires a specific reason for needing the reverse mortgage, such as hospitalization, mounting debt, or medical bills.
Next we have what is called a proprietary mortgage. This kind usually comes from all different kinds of lenders, mostly from the private sector. The downfall of this type of mortgage is that the lender has control over the requirements of the loan and what the loan can be used for.
The third kind is a conversion mortgage. These types of mortgages are issued by the FHA, and the money can be used at the borrower's discretion. As stated above, this type of mortgage requires a low balance on the home's current mortgage so that the mortgage can be paid off with a portion of the loan.
One of the best advantages of a reverse mortgage is the fact that it is usually not dependent on the borrower's credit score, and you don't pay back the loan until you vacate the premises permanently.