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Reverse Mortgage

If you are a senior over 62, a homeowner and looking for some free big money, then a reverse mortgage may be the thing for you. A reverse mortgage (also known as a lifetime mortgage in the UK) is used to release the home equity of your property. You may get money in a lump sum or over multiple payments. The great thing about a reverse mortgage loan is you never have to pay it back! The loan is deferred until the homeowner dies, home is sold or when the homeowner leaves or enters a nursing home.

Requirements for a Reverse Mortgage

The requirements of a reverse mortgage currently state that you have to be a senior over the age of 62 in the US. The older you are, the better off you are. You also need no credit or income requirements, but you should find out if you qualify for the reverse mortgage loan.

The money from this mortgage loan can be used for any purpose whether it's repairing your house or taking a vacation or buying a new car. Other unpaid mortgages must first be paid off before you can use the rest of the money and proceeds. Liens or property tax liens also play a factor in the value of the reverse mortgage.

Reverse Mortgage Proceeds and money you qualify for.

Obviously the biggest factor how much money you can get from a reverse mortgage is the value of the property. Mobile homes usually don't qualify due to lower value and repairs that need to be made on the house for health or safety reasons also need to be taken into consideration.

The second factor is the interest rate. The interest rate is determined from the 10 year T-bill by the US Treasury. The rate can also be determined by the LIBOR index. The third qualification is your age. The older you are, the more money you will get. The US Department of Housing (HUD) or the Federal Housing Administration (FHA) amortization table calculates by subtracting your age from 100 years and divides the maximum reverse mortgage loan amount by this difference. Each reverse lender is different so the calculation may differ from the one above.

How you choose to take your reverse mortgage funding also determines how much money you will get. You can take it all in one lump sum, but like winning the lottery, the interest on it is greater. You will get the most money by taking it out in a line or credit or monthly payments. Finally, the location of your property and maximum loan amounts can also determine how much money you will get, just as with any other loan.

Cost and Interest of Reverse Mortgage Loan

In most cases, the borrower doesn't need to pay upfront for a reverse mortage loan. The costs and fees will usually be taken into the principal balance of the loan. This means that seniors with no cash can apply and get a reverse mortage. Usually the cost of the loan would be around 1%-3% origination fee and a 1%-3% insurance premium.

These types of loans have no fixed duration period so the interest rate will generally not be fixed as well. The Adjustable Rate Mortgages (ARM) is usually the amount that a reverse mortgage program will follow, but each program is different and the interest rate will always be adjusting. Since you don't have to make payments on the loan, the interest is added to the principal of the loan. You need to check out different loan companies out there and research them to find the best deal and even find some that have fixed interest rates today.

Paying off a Reverse Mortgage

A reverse mortgage loan ends when the owner dies, sells the house or moves out for a period of one year. At this point, the loan gets paid off when the house and estate gets sold or if the heirs of the house decide to refinance. If the house is sold for a value that is more than the difference of the loan, then the owner or heirs will receive money.

Second, Third and Multiple Reverse Mortgages

Sometimes the value of the property greatly increases after you have taken out of reverse mortgage. This means that your property is now worth much more than the loan you have taken out. In this case, you may actually be allowed to take out multiple reverse mortgages. For example, if your property was worth $200,000, you could have taken out a $200,000 reverse mortgage. Then due to fluctuations in the real estate market, your property is now worth $300,000. You could then take out a second reverse mortgage for $100,000. You can even take out a third reverse mortgage and so on depending on your reverse lender and program.

Here at big money forums, we have a community discussion forum for finance and credit issues including mortgages at the Finance and Credit Forum. Ask questions on the message board and chat to get advice from other folks about reverse mortgages or any other lending topic.