Many of our retired customers find themselves living on a fixed income. Many also own a home which is either paid for, or which has a very small mortgage, a situation often described as “house-rich-and-cash-poor.” In the past, there have been few acceptable ways to take advantage of this home equity, apart from selling the home. Recently, however, a new financial tool has been developed – the reverse mortgage – which provides qualified individuals access to the equity in their homes, and still permits them to retain ownership of the home.
Most homeowners are familiar with the traditional home mortgage. An individual buys a home, and, over time, as the monthly payments are made, the balance due on the mortgage is gradually reduced. A homeowner’s equity – the difference between what is owed and the market value – is also increased if a home’s market value increases. In the traditional, forward mortgage, as debt decreases, equity increases. A reverse mortgage, as the name implies, works in the other direction. With a reverse mortgage, cash flows from a lender to a borrower. The following features may be helpful as you consider whether a reverse mortgage is right for you:
Eligibility: Reverse mortgage programs generally require that all borrowers be at least 62 years of age. The home must be owner-occupied, and be the borrower’s principal residence.
Ownership: During the term of the mortgage, the borrower remains the owner of the home, and is responsible for payment of property taxes, maintenance and repair, and keeping the home insured.
Repayment: No payments are required as long as the borrower lives in the home. The outstanding loan balance, including accrued interest and any loan costs, is due when the last borrower sells the home, permanently leaves or dies.
Maximum loan balance: A borrower can never owe more than the value of the home at the time the loan is repaid. Reverse mortgages are generally non-recourse loans, which means the lender can only look to the value of the home for repayment.
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