What is a reverse mortgage and how do you qualify for one?
Answers | 3
What is a reverse mortgage? It’s a loan against your house where you make no payments, ever. If you have a mortgage, you convert to a reverse and eliminate your payments. If you have equity, you can take out the cash equity as a reverse mortgage with no payments. When you pass away (or the last surviving spouse if married), then the bank will take the house. You get the benefit of living there rent free and you have total use of your equity to do with as you please.
How do you qualify? The youngest spouse (if married) must be 62 years old. You must have some equity in the home (Typically 40% or more. The exact % is dependent on your age.) If you meet the minimum qualifications, you then have to go through a thorough process to insure that you understand all of the details of how the reverse mortgage works.
Reverse mortgages have received bad publicity in the past because if the outstanding value of the loan becomes higher than the value, they would foreclose and take the house from you. Legally, they are no longer allowed to do that. Now, the bank will purchase a whole life insurance policy on your life to protect against this problem. This way if the loan balance is higher than the market value, they just collect on the life insurance to cover the difference. If you’ve ever heard that the fees are high on reverse mortgages, it’s because of this insurance coverage. It’s totally worth it!
I hope this helps. Please let me know if you have any questions.