Funding Reverse Mortgages

• Reverse mortgage repayment is guaranteed by the equity in the home. Home owners can receive the loan in one lump sum or periodic payments. When the reverse mortgage is established, the mortgage lender is given a lien on the home for the principal and accumulated interest on the mortgage when the home is sold. After the mortgage lien is settled, any remaining sales proceeds go to the owner or the owner's estate.
  
  

Eligibility Requirements

• The main requirement for a reverse mortgage is that all the listed owners are at least 62 years old. The home has to be paid for or have a small mortgage balance due that the reverse mortgage can cover. There is no credit check on any of the owners since there is no underwriting of the mortgage. The mortgage is based on the equity of the home, not the owners' ability to repay.
  
  

Reverse Mortgage Advantages

• Many home owners do not own many (or any) other investments as large as their home equity. Reverse mortgages allow home owners to convert their home equity into cash while keeping their home. This allows seniors to have more money for their retirement without having to give up their home or put a second mortgage on it. Second mortgages would require regular monthly payments for the owners to keep their home. Default on a second mortgage could lead to foreclosure.
  
  

Reverse Mortgage Drawbacks

• Reverse mortgage repayments can exceed the value of the home when it is sold. This can occur for several reasons. Declines in the local real estate market values can depress the home's value. If the reverse-mortgaged home is sold when it is "under water" or worth less than the mortgage principal and interest due, the estate could be billed for the difference. Most mortgage lenders require repayment insurance be issued for the mortgage to cover the shortfall.
  
  

Tip

• For senior home owners who want to access some of their home equity but still leave funds in their estate, just do this. Take the money out in regular payments, not as a lump sum. This will cut down on both the principal and interest payments due when the house is sold. The reverse mortgage lender can offer several different payout options to suit your wants and needs.