What Is A Reverse Mortgage?

In a whirlwind of information on loans and mortgages, it is easy to understand how people get confused and may wonder, exactly what is a reverse mortgage? 

The first thing that people should know is that, unlike a traditional mortgage where the individual pays money for a new home, in a reverse mortgage the individual receives money for their existing home. The money that they receive actually comes from the equity that is in their home. Some may think that sounds remarkably like a second mortgage. While it is true that is sounds that way, the only similarity to a second mortgage is that money is received by the homeowner. 

So what is a reverse mortgage? It is an option for obtaining money from the equity in your home without losing possession of the house or taking on additional debt; an option only available to homeowners 62 years of age and older. Normally, in a traditional mortgage, payments would generally begin the month following the closing process. In a reverse mortgage, however, repayment does not occur one of the following situations occur:

• Death of the homeowner
• Sale of the property
• The homeowner no longer uses the property as their primary residence

When one of these situations occurs, the loan becomes due. The amount that will be due is never more than the value of the home; if the proceeds from a sale exceed the amount that is owned on the property, all of the excess money reverts back to the homeowner or their estate. 

Most individuals over the age of 62 that own their home, or have enough equity built up in their home, will be eligible for the loan. Employment status is not an issue, since neither income nor credit status is considered for eligibility of the loan. The proceeds from the mortgage also do not generally affect either Social Security benefits or Medicare; however, Medicaid eligibility considers the proceeds to be an asset and may have specific requirements due to the money received. The funds can be received in one of 3 ways: lump sum, monthly payments or a line of credit, and can be used for any purpose.

Some may wonder not only what is a reverse mortgage, but also is it right for me. Since other options may be available, it is wise to investigate all options fully to determine the best one for your needs.