A reverse mortgage is one in which a lender lets a homeowner borrow against the value of their home. This money is available in the form of a line of credit. Mortgage repayment is not needed until and unless the owner sells, moves away or dies. Reverse mortgage lenders, such as Primary Residential Mortgage, Inc., ensure that the money advanced not more than the value of the property.
How the reverse mortgage process works
A reverse mortgage is different from a regular mortgage in one crucial way. With a regular mortgage, consumers take loans from a bank and build up equity in their property over time.
Reverse mortgages allow the homeowner to access the built up equity as a lump sum amount or a line of credit. The homeowner retains ownership but has to pay interest on the money received. Other factors to be aware of are:
- Lenders offer reverse mortgages at fixed interest or variable interest rates.
- The majority of these loans are charged variable interest and tied to the market.
- Over the life of the loan, a homeowner’s equity keeps decreasing. If a homeowner chooses to move, sell or dies, a lender can sell the property to recover their money.
- Heirs are entitled to what remains after a lender recoups their funding.
- Homeowners are responsible for the upkeep of the property and also for paying insurance and taxes related to the property.
Different types of reverse mortgages
There are a few reverse mortgages that you as a consumer can access, and they are:
- Single-purpose. Offered in some states and non-profits
- Federally insured. Also known as Home Equity Conversion
- Proprietary. Offered by financial companies as a private loan
Before deciding to apply for a reverse mortgage, it is mandatory for consumers to get counselling. Reverse mortgage lenders also advise consumers to do so — counselling protects those who are not savvy about finances.
It is to help consumers understand that reverse mortgages can be difficult to understand. Reverse mortgages are also offered only to those who are 60+ years old.
Lenders have to talk to both spouses and give them time to reconsider. As with any loan, it pays to talk to different lenders and get the best terms and interest rates.