What Is A Reverse Mortgage?

If you are like most people, you have probably heard of a reverse mortgage but you are not quite sure what it is or how it works. In this article, I will describe what a reverse mortgage is and try to help you understand how it works.

Simply said, a reverse mortgage is a mortgage loan product available to homeowners who are 62 or older and have equity in their home. The homeowner/borrower gives the lender a lien against their property and the lender pays the homeowner/borrower money to do so. In its most common form, the borrower can take out a lump sum, receive monthly payments or get a line of credit or a combination of monthly payments and a line of credit.

How Does a Reverse Mortgage Work?

The way a reverse mortgage works may be best described by comparing it to how a regular mortgage works. In a regular mortgage, the homeowner/borrower makes payments to the lender over time to pay down the amount borrowed. Each month, a portion of the mortgage payments goes toward paying interest on the loan and part of the payment goes to pay down the principal amount owed on the loan.

In a reverse mortgage, the lender pays the homeowner/borrower. As a general rule, the borrower does not have to pay back the monies he or she has received so long as he or she lives in the home. At the time the borrower dies, moves out or sells the home, the monies advanced by the lender must be repaid. This can generally be done by selling the home. Most reverse mortgages, however, are non-recourse – this means that the homeowner is not personally liable to repay the loan. This also means that the borrower cannot owe more than the value of the home when the loan becomes due. For example, if the heirs want to keep the home rather than sell it, they would not have to pay more than the appraised value of the home at the time the loan becomes due – even if the amount owed on the loan is substantially higher than the value of the home at the time.

Michael Wyckoff

Operations Director – Mortgages Sarasota Area | Mortgages Bradenton Area
(941) 795-7525

Mortgage company providing reverse mortgage in Sarasota, reverse mortgages in Bradenton and the surrounding areas.