A reverse mortgage is simply a mortgage where a lender will lend a borrower money against the equity in the home in which he or she lives. Repayment to the lender, unlike in a traditional mortgage, will occur after the borrowers have either passed away, sell the property, or permanently move out of it due to health reasons.
What Qualifies You for One?
The minimum eligible age to receive a reverse mortgage is 62. The older a borrower is, the more money he/she will be able to borrow against the property (minus the cost of the reverse mortgage itself) regardless of the amount of equity in it.
Borrowers will have access to most, but not all, of the equity in the property.
Credit checks are not normally required by lenders–although they do get a copy of the title to the property to determine if there are any liens against it–which could affect the amount of available equity.
Often the reverse mortgage will be used to pay off an existing mortgage, or mortgages, thereby making the reverse mortgage the only lien on the property.
There are typically three ways in which borrowers receive the funds from a reverse mortgage. They are:
- A line of credit. This is the most common way. Similar to a home equity loan, the borrowers would only draw, and accrue interest on, the money that they use.
- In a lump sum, paid when the reverse mortgage is taken out.
- In a fixed payment stream.