Reverse loans are exclusively designed and available for senior US citizens. These loans are used to release home equity either as a single lump sum amount or multiple payments. Simply put, reverse loans enable senior home owners to convert part of their home equity into cash without selling it or paying additional monthly bills.
The objective of this loan is to help retirees with limited income to use the wealth in their homes to cover and pay for their living and healthcare expenses. But nonetheless, there is no restriction on how the proceeds from reverse mortgage loan are used.
It is referred to as a reverse mortgage because the loan payback stream is reversed. Unlike the traditional loan where the borrower makes monthly payments to the lender, in a reverse mortgage, the lender makes payments to the borrower. It can be monthly payments or a bulk payment of the equity available. However, the interest on reverse mortgage is added to the lien of the residential property and the debt on the property increases every month.
The borrower doesn’t have to pay back the loan until the home is sold or vacated. Though the borrower is not required to make any payments towards the loan balance as long as he/she lives in the home, however, it is important that the borrower must remain current on:
- Property taxes
- Homeowner insurance fees
- Condo fees (if he/she lives in a condo)
When the home is sold, the borrower pays the lender the amount received from the reverse mortgage plus the interest accumulated and other fees. The remaining equity of the home belongs to the borrower and heirs after paying of the loan balance.
Eligibility Requirements of a Reverse Mortgage Loan
- The borrower must be 62 years old or above
- The home must be the borrower’s primary residence
Other than that, there is no minimum credit score or income requirements. Also, in many states, borrowers can use the reverse mortgage loan proceeds to purchase a new property as well.
The Process of Calculating Reverse Mortgage Proceeds
The proceeds amount that a borrower receives through reverse mortgage depends on the borrower’s age, the prevailing interest rate, and the appraised property value or the FHA mortgage limit of the area in which the property is located, whichever is less.
Types of Reverse Mortgage Loans
Reverse mortgage loans can be divided into three types:
Single purpose mortgage, offered by non-profit organizations and local government agencies
Proprietary reverse mortgage are privately insured loans offered by banks and mortgage companies
HECM (Home Equity Conversion Mortgage) is federally insured reverse mortgage guaranteed by HUD (The US Department of Housing and Urban Development)
Out of the three reverse mortgage options available, single purpose reverse mortgage is the least expensive. However, it is not readily available and can only be used for one purpose which is specified by the non-profit lender or the government agency.
If you are a home owner above 62 years of age and struggling with your financial expenses, then get in touch with Greentree Mortgage for reverse mortgage loan.