Step1 What is a Reverse Mortgage? ~ A reverse mortgage is where a bank or lending company pays money to purchase equity in a home. In a traditional mortgage, a borrower is allowed to take occupancy of a home while slowly purchasing its equity from a lending company. The 'reverse mortgage' is the opposite situation. The mortgage company purchases a percentage of equity in your home, allowing you to remain in your home, and collects the loan with interest at a later time.
Step2 Income Requirements? ~ Generally, none. Unlike a traditional loan, there are usually no income guidelines or minimum requirements for a reverse mortgage. This is because the mortgage is not intended to be paid in installments. A reverse mortgage is actually designed for borrowers who are of or nearing retirement age. Instead of payments, the reverse mortgage is intended to be paid off when none of the co-owners continue to use the home as their primary residence. The sale of the property, not the borrower's income, will be the source of repayment.
Step3 What are the Payment Options? ~ You may choose to receive the total of your reverse mortgage in the form of installments, lump-sum payout, or a personal credit line. You may also divide your payment between these options.
Step4How is the Mortgage Repaid? ~ Most reverse mortgages require no repayment while you are alive, living in the home, and maintain your level of ownership or co-ownership. Reverse mortgage repayment is obligated when you (or any co-owner) no longer reside in the home. This can be due to illness, death or sale of the home, or any other reason that would strip the borrower of titled ownership.
Step5 Reverse Mortgage if There is a Lean on the Title? ~ Yes. Your reverse mortgage will have to be substantial enough to repay the existing mortgages or leans on the title in full before extending payment or personal credit to you. If a borrower owes $30,000 on a forward mortgage and would like to use the same property to acquire a $30,000 line of credit, the reserve mortgage would have to be at least $60,000.
Step6Age Requirement? ~ 62
Step7Hidden Expenses? ~ Common hidden expenses charged to the borrower of a reverse mortgage by the lending company include: closing costs, origination fees, growing interest percentage, various other mortgage fees. Fees associated with your mortgage are priced at the discretion of the lender and will likely increase over time.
Step8Other Borrower Obligations? ~ In a reverse mortgage, the borrower keeps the title to their home. Subsequently, the borrow retains all financial responsibility associated with home ownership. This includes all tax liability. Also, home-owner insurance is mandatory when acquiring a reverse mortgage and is the borrower's financial responsibility until the mortgage is repaid in full.
Step9 Borrower Consequences? ~ If the borrower fails to fulfill his/her obligation under the terms of the reverse mortgage, the mortgage generally becomes due immediately. Violations that might result in immediate repayment include failure to keep the home adequately insured, failure to pay tax liability, failure to maintain basic utilities, or serious neglect to the home that might lead to its depreciation.
Step10 Tax Deductions ~ Because the borrower often does not repay the reverse mortgage until the house is sold, borrowers are generally not eligible for an annual interest tax deduction. The borrower is eligible only when interest payments have been made in part or in whole within any given tax year. If no payments are made until the home is sold, interest tax deductions can only be claimed for the year the sale took place
