A reverse mortgage is a form of equity release. It allows a person who owns a home that has built equity to turn the equity into cash. This cash can be cashed out in one lump sum amount, ongoing monthly payment or a combination of both. Reverse mortgage loan advances are not taxable, and generally don't affect your Social Security or Medicare benefits. You retain the title to your home, and you don't have to make monthly repayments. In other words, a reverse mortgage is a type of home equity loan that secured against your home. However, there are a few differences between reverse mortgage and regular home equity loan. One of them is a reverse mortgage is designed to defer the mortgage interest and it does not need to be paid until one of the following occurs:
- The house owners or the borrowers sell the house; o
- The borrowers/owners of the house are no longer the primary residences; o
- The borrowers/owners pass away.
Types of Reverse Mortgage
There are three types of reverse mortgages:- Federally-insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs) and backed by the U. S. Department of Housing and Urban Development (HUD)
- Single-purpose reverse mortgages, offered by some state and local government agencies and nonprofit organizations
- Proprietary reverse mortgages, private loans that are backed by the companies that develop them
Reverse Mortgage Requirements
Reverse mortgage is eligible for everyone. It has a number of requirement that must be met before a borrower is qualified to apply for it. General requirements include:- The borrower owns a home with built-up equity must be 62 years of age or older.
- The applicants must own home outright or have a mortgage balance that can be paid in full with the loan.
- The borrower must be the principal residence of the house. For example, if the house is used as a holiday home, it can't be used to apply to reverse mortgage.
- No proof of income required as the balance of the loan can be paid in full at the end.
