Unlike a conventional mortgage that decreases over time, a reverse mortgage increases over time.
Reverse mortgages are designed for older homeowners who are "house rich, but cash poor.
" With a reverse mortgage the homeowner borrows money, but does not have to repay it as long as they live in their house.
Each month interest is added to the principal amount of the loan, and when the homeowner moves, they either repay the loan, or the house is sold and the proceeds go to the reverse mortgage lender.
To qualify for a reverse mortgage, the borrower (and their spouse if married) must be 62 years of age or older, and they must own their primary residence, which will serve as security for the loan.
The amount that the borrower can borrow is based on the value of the home, interest rates, and the age of the homeowner.
Older homeowners can borrow more than younger homeowners, since it is assumed that the reverse mortgage will be repaid sooner.
Here are ten reasons you should consider a reverse mortgage
- the borrower can remain in their home, allowing them to remain independent;
- the proceeds from the reverse mortgage are generally tax free;
- reverse mortgages are flexible; payments can be received as a lump sum, or as monthly payments for life;
- no repayments are necessary as long as the homeowner lives in the home;
- in most cases reverse mortgage proceeds will not affect regular Medicare or Social Security benefits;
- the borrower's credit rating doesn't matter; only the value of the home is important;
- no payments are required as long as the homeowner lives in the house;
- it's a good way to unlock the equity in a house, to allow the homeowner to remain in their house;
- the proceeds from the mortgage can be used for any purpose;
- reverse mortgages are non-recourse, so even if house prices drop in the future, or interest rates increase, the homeowner cannot be forced from their home.