Reverse mortgage loans are used by homeowners at least 62 years old who have considerable equity in their homes. They are allowed to borrowing against their equity, and they do so to get access to cash to pay for cost-of-living expenses late in life. They can borrow cash that they need at rates starting at less than 3.5% per year, and since they are borrowing against the home that they alredy own, that they may not necessarily ever repay it. Instead, when the borrower moves or dies, the borrower’s heirs sell the property in order to pay off the loan. The borrower (or their estate) gets any excess proceeds from the sale.
Most reverse mortgages are issued through government-insured programs that have strict rules and lending standards but some are through private non-bank lenders which are less regulated. After a lender funds a reverse mortgage, borrowers use the money as provided for in their loan agreement. Some loans have restrictions on how the funds can be used (such as for improvements or renovations), while others are unrestricted. These loans last until the borrower dies or moves.
Requirements to qualify for reverse mortgage are as follows:
- Borrower must be at least 62 years old
- Can only borrow against their primary residence
- Must have at least 50% equity with, at most, one primary lien—in other words, borrowers can’t have a second lien from something like a HELOC or a second mortgage
- Typically only certain types of properties qualify for government-backed reverse mortgages. Eligible properties include:
- Single-family homes
- Multi-unit properties with up to four units
- Manufactured homes built after June 1976
-Condos or townhomes
Reverese mortgage loan is ideal for:
- Seniors who are encountering significant costs late in life
- People who have depleted most of their savings and have considerable equity in their primary residences
- People who don’t have heirs who care to inherit their home
