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Reverse Mortgage is a form of mortgage, which quickly becoming is a popular option for senior citizens. In this form of a mortgage, the borrower’s home equity is used as collateral for the loan amount. The loan amount is often given by the lender in one lump sum payment or else it is in the form of multiple payments.
The loan amount is not repaid in the form of monthly mortgage payments, instead it is deferred till the point wherein the borrower dies due to old age, or moves into an old age home whereupon the home is sold off and proceeds used to pay off the loan taken.
Reverse mortgage is a financial tool that is made available to people who are sixty two and above for the purpose of enabling those who are in the senior years of their life, to get the financial help, that they require. As a result, the general criteria that is applicable when taking other types of loans such as credit scores, employment proof, and proof of income is not considered here. However, there are certain specific criteria which apply for taking a reverse mortgage. The main eligibility requirement here is that the borrower must be a senior citizen. Furthermore, certain types of homes do not qualify for a reverse mortgage or are treated in a special way when it comes to taking a reverse mortgage on them, as seen in mobile homes. Borrowers must look into these aspects before applying.
Proceeds from a reverse mortgage can be used for any purpose, but if the borrower has any pending mortgage payments, when taking a reverse mortgage, these must be paid off, using the money received from the reverse mortgage, before paying off anything else.
In the Unites States, the most popular form of reverse mortgage is the FHA-insured Home Equity Conversion Mortgage (HECM), in which the borrower has to pay a two percent insurance premium and a origination fee, plus normal closing cost charges.
Though a reverse mortgage can be useful form of finance, it is necessary for an applicant to take free financial counseling from a HUD approved source so that they are well aware of how the entire process goes and what they need to do to obtain a reverse mortgage.
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