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What Are Reverse Mortgages?
by John M. Roberts

A reverse mortgage is a loan that does not have to be repaid until the homeowner on title of property sells it or passes away. Such loans are designed to help seniors enhance their lifestyles by paying off debt or providing another stream of income.

A reverse mortgage is a loan that is taken out on a home by senior citizens to provide an additional cash flow, usually to supplement retirement and/or social security income. The loan is based on a percentage of the equity in the home and the money can be used to help pay bills and other expenses.

Before the money from a reverse mortgage is given to the borrower, all existing loans against the home are paid in full. In essence, a reverse mortgage turns the equity in a home into a tax-free income.

The home being mortgaged must be owner occupied and the homeowner must be at least 62 years of age or older. There are no credit or minimum income requirements, although a borrower should make sure that his property qualifies before investing his time and money into the loan process.

Certain types of property don't meet reverse mortgage standards. The home must be single family, a condominium or town home, and mobile homes that fall within certain guidelines. If the borrower is in bankruptcy, it may make the process of getting the loan a bit more difficult but not impossible.

With a reverse mortgage, a homeowner can get the funds in multiple payments or in one lump sum and the loan does not have to be repaid until the home is sold, the owner dies, or is put in an elder care facility. In essence, a reverse mortgage is paid with the homeowners equity in which the principal and interest are paid in a manner similar to an annuity.

Before being approved for the reverse mortgage, an applicant may be required to get financial counseling to make the borrower aware of the short term and long term ramifications of taking out such a loan. The counselor must be approved by the Department of Housing and Urban Development (HUD).

A reverse mortgage uses part of a home owner's equity to provide immediate cash to the home owner. Payments to the homeowner can be made in a multiple of ways. The reverse mortgage is only paid off upon the death of the borrower or sale of the property by the borrower.

With a reverse mortgage, the home can never be foreclosed on as long as the taxes are paid and kept current. The home remains in the possession of the borrower until it is sold or until the borrower dies, even if the borrower outlives the loan.

If the property goes up in value, the borrower can refinance the reverse mortgage but he can not get another type of loan on the property as long as the reverse mortgage is on it.

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