Home Retirement Reverse Mortgage Explained for Seniors

Reverse Mortgage Explained for Seniors

Reverse mortgage is a loan product for retirees and pensioners. This product is specifically designed for ‘cash poor’ but ‘asset rich’ American seniors above 62 years old. While reverse mortgages have a pretty straightforward premise — typically, you borrow against your house, but you have to be 62 years or older — there’s still a lot of questions about this particular loan product. Unlike traditional mortgages, you lenders are not obligated to make any payments, monthly or otherwise, in your lifetime.

Reverse mortgages for senior citizens are a great way for retirees and pensioners aged 62 years and above to supplement their income. You must have accrued a decent amount of home equity to qualify for a home equity conversion mortgage. The best thing about reverse mortgages is that the requirements are not overly restrictive; it’s easier to qualify for a reverse mortgage than it is to be cleared for similar products such as home equity loans, line of credit, or mortgage refinance.

How It Works

As a homeowner with a traditional mortgage, your home accrues equity over time as you pay your mortgage. The accrued equity for your home is the value of your home (in the current real estate market) minus any debts that you may have in mortgage(s) against the home. For instance, if the appraised value of your home is $500,000 and you owe $100,000 in mortgages (you have already paid the rest), your home equity worth will be valued at $400,000.

For most US homeowners, home equity represents a significant portion of their net worth. If that’s the case, tapping into this wealth to supplement your income in retirement is always a good idea. There are several ways of tapping into your home equity, and a reverse mortgage is one of them. If you meet the eligibility requirements for this product, prospective lenders will offer a line of credit or fixed monthly payments. The amount you receive will, however, depend on the value of your equity.

Who’s Eligible for A Reverse Mortgage?

Generally, if you own a home and use it as your primary residence and are 62 years old and above, you are eligible for a reverse mortgage. The home — be it an approved condo, a multi-family or a single-family home — has to be in good condition before you take the loan. As a prospective borrower, you must subject yourself to a financial assessment to qualify.

How Is A Reverse Mortgage Repaid?

If the terms of the loan are kept, and the borrower continues to live in the home, there’s no loan to repay as long as he/she lives. The loan only has to be repaid when the last surviving homeowner passes on or moves out. If and when that happens, the lender will sell the house and use the proceeds to repay the loan. The heirs get to keep the extra funds if any. If proceeds from the sale of the home are not enough to service the loan, the lender cannot go after the heirs for the balance; they just have to accept the financial loss.