What Everyone Should Know About Reverse Mortgages

There has been a lot of talk about reverse mortgages in the news, especially as the economy continues to struggle. The question remains, however, as to what exactly reverse mortgages are and how they can be of use to those who are in financial need.

In short, reverse mortgages are not mortgages at all. What they represent are more like annuities, with the equity one has built up in their home used as collateral.

Using reverse mortgages, homeowners who are at least 62 years of age or older are able to convert part of the equity they’ve earned in their homes into non-taxable income. This can be done without having to sell one’s home or embark on a series of monthly payments to a mortgage company.

As baby boomers begin to enter into retirement, they’re finding that the money they’ve set aside simply does not allow them to live comfortably, or even take care of basic necessities like food or medicine. It is believed that as more of these individuals come to see themselves in such a financial state, reverse mortgages will become a more frequent avenue to financial security. The question is, exactly what are they?

Basic Facts about Reverse Mortgages

Reverse mortgages are a type of home loan that seniors aged 62 or older can take out using some of their home’s equity as collateral. The loan pays out as an annuity over the life of the loan itself, and typically does not need to be repaid until the last homeowner in the home dies. Once this happens, the loan has to be repaid within six months via direct payment or via the sale of the home. Any equity in the home left over at the time of settlement with the reverse mortgage lender is free to use by those left who are connected with the home’s estate.

Types of Homes Applicable for Reverse Mortgages

Homes put to use for reverse mortgages have to be at least 30 years of age. They must also be on land the annuitant or mortgagor owns, set on a solid foundation, and in line with FHA inspection requirements. In some cases, condominiums and townhomes may also be used for reverse mortgages.