What is a reverse mortgage?
A reverse mortgage is a type of loan seniors can use to extract equity from their homes. Borrowers are typically required to be at least 62 years old and own their property free and clear (i.e., without any exiting liens or loans secured against the property). The loan is repaid with interest, usually monthly payments when they pass on or sell the house.
Why would I take out one of these loans?
Reverse mortgages can be used for three key reasons by senior citizens.
1) To supplement retirement income.
2) To reduce estate planning costs.
3) To fund home renovations, home repairs, medical expenses.
How flexible are they?
Reverse mortgages can be structured to pay the borrower a fixed amount on a monthly basis; provide for a line of credit; or some combination of the two. Monthly payments can be fixed amounts, change with interest rates, increase over time, start after a certain period of time, or have other features. The purpose of this flexibility is to tailor the loan to meet the needs of the borrower.
What about home equity? What’s that?
The difference between what your house is worth and what you owe on it is your home equity. Most Americans have home equity—about seven-tenths have more than $100,000 in it. A reverse mortgage takes some of that equity and puts it on the borrower’s side of the ledger.
How much can I borrow?
It depends. The amount you can borrow is limited to a percentage of the appraised value of your home. A borrower has two primary ways to shave off this percentage- either by taking more than one reverse mortgage or by taking less than the maximum on a single reverse mortgage.
Are there any limitations? Like, for instance, age? Yes, of course, considerations such as age and race will impact whether you’re able to qualify for a reverse mortgage. As mentioned above, only senior citizens, 62 years or older are eligible for these loans.
How to Apply?
Those interested in reverse mortgages can apply in a few steps. First, the borrower must be able to qualify for a loan. Second, you must have an appraisal completed. Third, you must prepare and file the necessary documents with the Federal Housing Administration or relevant authority in your area.
At Socal Home Mortgages, you can benefit from home loans and other housing finance options. Their mortgage brokers and home loan experts in California provide you details of everything you need to learn the financing basics and provide tips for first-time home-buyers too.