A reverse mortgage loan also called a home equity conversion mortgage is a kind of home equity loan which can be availed by senior homeowners, aged 62 years or more. The loan gives senior homeowners the ability to get their home equity converted into cash, without any monthly mortgage payments. If you do not know how does reverse mortgage work, it would probably suffice to say that a reverse mortgage loan basically allows senior homeowners to continue to live in their home by accessing a part of their home equity.

With the first FAH-insured reverse mortgage having been introduced in 1989, the main idea behind the introduction of the loan was that retired homeowners who have limited income should be able to avail the benefit of the accumulated wealth in their homes, so that they can have enough money to pay for their day-to-day expenses and for health care. In addition, the proceeds from reverse mortgage can be used by the borrowers for covering any other expenses too.

A reverse mortgage loan is essentially a non-recourse loan which is different from a traditional loan in the sense that the borrowers receive monthly payments from the lenders. These payments can be structured in two ways – ‘term’ and ‘tenure’ payments. In the first option, the borrowers get payments from the lenders for a predetermined number of years; and in the second option, they continue to receive payments from lenders till the time they own the home. The payments which the lender makes to the borrower can be recouped only upon the sale of the property, with the amount collected by the lender not exceeding the sale price of the home.

If you are aware of how does reverse mortgage work, you would probably know that the loan is repaid when the borrower moves out of the home permanently or sells it, or when he/she dies. Hence, as long as the reverse mortgage loan borrowers continue to stay in their homes, they do not have to make any monthly payment towards their loan balance. However, the conditions of a reverse mortgage loan require that the borrowers should remain current on homeowners insurance and property taxes, and also home association dues if applicable.

So far as the eligibility of a reverse mortgage loan is concerned, senior citizens who want to take advantage of such a loan should have a home in their name or their mortgage balance should be low so that they can use the proceeds from the reverse loan for paying it off. Moreover, the home should also be the borrower’s’ primary residence.

In a nutshell, a basic understanding of how does reverse mortgage work clearly reveals that the amount of money which borrowers can get from lenders is largely dependent on their age and the value of their home the older the borrowers and the more valuable their home, the higher is the amount of money they can get. Overall, a reverse mortgage loan is a good option for senior homeowners who have no plans to move out of their home, and for those who want to supplement their income by accessing the equity in their home.

 

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