Reverse mortgages are also known as equity release schemes. Reverse mortgages are loans that are specifically designed for seniors who are home-owners that want to release the equity they hold in their property. The equity released by the reverse mortgage can be paid to the home-owner as multiple payments or as a one off lump sum payment.
The reverse mortgage agreement does not require that the home-owner make monthly repayments to settle the loan.
Settling Reverse Mortgage Loans
The settlement of a reverse mortgage loan does not occur in the same way as a conventional mortgage.
Conventional mortgages require that the borrower make regular mortgage amortization payments to the lender. The home-owner’s equity in the property increases with each payment made. At the end of a conventional mortgage the home-owner owns 100% of the equity and the lender releases any claim to the property.
Reverse mortgagees do not have to make regular monthly or bi-weekly payments: the loan settlement occurs when either the property is sold onwards, or the home-owner dies or enters care.
Qualifying for a Reverse Mortgage
There are various conditions required to be a successful candidate for a reverse mortgage, but the most important of which is that the mortgage applicant must be 62 years of age or older. Unlike conventional mortgages, there is no requirement for the applicant to have a certain level of income as the equity in the property determines the amount that the reverse mortgage will pay out.
In the main, the loan amount provided by reverse mortgages can be used for any purpose although any outstanding amount owed on an existing mortgage must be settled beforehand through personal funds or through the equity released by the reverse mortgage.
It is worth noting that reverse mortgages may not be available for all property types while others (for example mobile homes) require special consideration.
A pending or actual bankruptcy can mean that your application for a reverse mortgage may take more time to process.
Reverse mortgages do not require FICO scores or payment history analysis. An application for a reverse mortgage loan is based solely on the value of the property to be mortgaged, the status of the property (i.e. fully owned or mortgaged) and the age of the youngest owner.
A Note on Reverse Mortgages
It is imperative that you take advice from a suitably qualified financial counseling professional who is endorsed by the U.S. Department of Housing and Urban Development (HUD). Such advice can help to ensure that you fully understand the mechanics of reverse mortgage loans and how you set about applying for one.