Reverse Mortgage 101

There are two main types of mortgage loans: there is a traditional second mortgage on your current home loan, or the reverse mortgage. Understanding how a reverse mortgage works will help you determine which loan type is best for you. By doing some online research, one can get a good grasp as to what a reverse mortgage can do.

Digging deeper in the definition

If you are 62 years of age or older, you are within the age allowance to get a reverse mortgage—a home equity loan aimed to put money back into the borrower’s bank account. This type of loan allows the borrower to tap into the equity of their home without making monthly mortgage payments. All the homeowner has to do is pay the taxes and insurance on their house. When (and if) the time comes when the borrower wants to sell the home, the bank takes its share from the proceeds of the home’s sale, and the rest is given to the homeowner in the form of a cash payout. If the homeowner dies, the same practice applies but the remaining funds will be dispensed to the borrower’s heir.  When you get down to the nuts and bolts of it all, a reverse mortgage is an equity loan secured by your home’s value that is designed to defer the mortgage interest. But is it the right loan type for you?

Use a mortgage calculator

The reverse mortgage calculator estimates how much the homeowner can qualify for in a Home Equity Conversion Mortgage (HECM) loan. The calculator reveals every possible outcome based on each program the borrower qualifies for. The accuracy of the calculator is next to perfection. It displays interest rates based on the current market. In fact, by using the reverse mortgage calculator, you will be using the same tool and you will receive the same data as the banks.

Investigate

For many people a reverse mortgage is the best option for their situation. However, make sure you investigate all your other options, and talk to loved ones about those options. In an article published by Elder Care, the author states that adult children should always consult with their parents before making financial decisions for them, unless their parents are physically and/or mentally capable. The article continues to read that if you are the authorized legal representative for your aging parents, you can request a reverse mortgage counseling session. Counseling allows you to take a look at your parents' overall finances to decide whether a reverse mortgage is a smart option. Be sure to examine the expenses and how your finances will look over time. Also, do the calculations to see what equity you have left in your home over pin pointed time periods.

Consult

As previously stated, it is advised that any adult children of the borrower be present in consultations with a mortgage broker if a reverse mortgage is being considered (if the homeowner is not completely competent to make his or her own decisions with finances). Don’t make hasty decisions; this is a big commitment and all parties need to be clear as to how the loan works.