What is a Reverse Mortgage?
There are many loan options for those in need, and a reverse mortgage is a type of loan for seniors aged 62 or older. Reverse mortgage loans allow homeowners to convert their home equity into cash income with no monthly mortgage payments. Most reverse mortgages are federally insured but beware of reverse mortgage scams that target seniors!
Reverse mortgages can be a great financial decision for some seniors but a poor financial decision for others. Understanding how reverse mortgages work and what they mean is essential before committing to one.
How does it work?
Instead of the homeowner making payments to the lender, the lender makes payments to the homeowner. This means the homeowners gets to choose how to receive these payments and only pays interest on the received money. The purpose is so that over the lifetime of the loan, the homeowner’s debt increases and home equity decreases.
Types of Reverse Mortgages:
There are three types of reverse mortgages, but the most common is the home equity conversion mortgage (HECM). This mortgage consists of almost all reverse mortgages that lenders offer on home values below $765,000 and is the most likely type you will receive. However, note that if your home is worth more, you can look into a jumbo reverse mortgage.
If you take out a reverse mortgage, you can receive the proceeds in a few ways:
- Lump-sum: The borrower receives all the proceeds at once when your loan closes.
- Equal monthly payments (annuity): If one loan borrower resides in the home, the lender agrees to make consistent payments to the borrower.
- Term payments: The lender gives the borrower equal monthly payments for a set period of choosing, such as 10 or 15 years.
- Line of credit: Money is available for homeowners to borrow as needed.
Is a reverse mortgage right for you? Our experts will help you! Check if you qualify, and learn about the tradeoffs involved. Apply now for a loan with Galaxy Lending Group!