A reverse mortgage is a program that allows older homeowners to tap into the accumulated value (equity) of a home. However, unlike a traditional mortgage where the balance owed is reduced with each monthly payment, with a reverse mortgage a lump sum or monthly payment is paid to the homeowner, and the balance owed actually increases with time. The balance owed is repaid when the homeowner moves or dies. Because of the increasing balance over time, a reverse mortgage should generally be a last-resort for homeowners who don’t have access to cash from other sources.
Generally, the requirements to obtain a reverse mortgage are as follows:
- Homeowner must be 62 years of age or older
- Have no existing mortgage or just a small balance
- Homeowner must live in the property as his or her personal residence
- Not be delinquent on any federal debt or taxes
If considering a reverse mortgage, homeowners should be sure to choose an FHA-approved lender. Also, note that closing costs and other fees can be large and can significantly reduce the amount a homeowner is able to borrow. Recently, banks such as Wells Fargo and Bank of America have stated that they will no longer offer reverse mortgages. (Click here for more on Wells Fargo and BofA)
Source: HouseLogic.com
The following resources are available for homeowners seeking more information about reverse mortgages:
Is a Reverse Mortgage Right for You? – HouseLogic.com
Alternatives to a Reverse Mortgage – HouseLogic.com
Pros and Cons of Reverse Mortgages – Time Magazine
Reverse Mortgages: Get the Facts Before Cashing in on Your Home’s Equity – U.S. Federal Trade Commission
