A Reverse Mortgage is not a Reversal of Fortune

For seniors (62 or older) who have built up the equity in their home, a reverse mortgage is a way to tap into that resource. A reverse (or lifetime) mortgage is a type of loan releases equity in a lump sum, and the obligation to repay the debt is deferred until the homeowner dies, sells the home, or leaves the home. The debt is paid when the house is sold, or other arrangements are made.

Conditions

The first condition, of course, is age. The borrower must be at least 62. Second, any existing mortgage must either be 1) already discharged or 2) paid off with proceeds from the loan; taxes and insurance must be maintained. Also, in order to protect the borrower and make sure all aspects of the loan are understood, the borrower must receive financial counseling from a Housing and Urban Development (HUD) financial counselor before moving forward with the loan process. In 2009, the lending limit was $625,000 - the maximum amount for which a home can be appraised. Because of increased mortality rates, as the age of the potential borrower increases, the qualifications become more lenient.

Amount available

How much a borrower receives in a reverse mortgage is determined by five factors.

1. The appraised value of the property, including consideration of repair issues and any existing liens.
2. The prime interest rate
3. The age of the borrower - older borrowers will receive more money than younger borrowers will receive. (The borrower must be at least 62.)
4. How the payment is received. Line of credit payment results in a greater amount: A lump sum payment provides immediate cash, but there is interest attached. Monthly payments are fixed, and are paid for the rest of the life of the borrower.
5. The actual value of the property, and whether that figure is greater than the loan limit. (Actual and appraised value are two different things.) There are loans available for homes valued over the limit, known as Jumbo reverse mortgages, and have their own set of conditions.

Benefits

The money received can be used for any purpose, unless existing liens need to be paid off. The money received does not directly affect federal programs such as Social Security and Medicare, and is not taxable.

In a way, tapping into your home’s equity with a reverse mortgage is like receiving benefits from life insurance, only it is a lot more fun to collect.

For complete information on a reverse mortgage, consult the HUD Handbook 4235.1 and the American Bar Association’s Guide to Reverse Mortgages, or your preferred lending institution.

Original Article found at www.Superpages.com