Asked by Crystal  |  Submitted August 12, 2015

What is a reverse mortgage and how do you qualify for one?

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  Answers  |  3

August 25, 2015

Great questions!

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.
Charlie Donaldson

C

calvincritz | 11.28.16 @ 20:08

Don't do it if you have kids. It's the hardest thing to overcome - the interest rate is 650% a month.

$commenter.renderDisplayableName() | 10.17.19 @ 17:31

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August 23, 2016

Crystal, a reverse mortgage is never a good idea. The consumer ends up paying high fees.

$commenter.renderDisplayableName() | 10.17.19 @ 17:31

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June 20, 2019

A reverse mortgage is a loan product, which is similar to a home equity line of credit. Charlie D. has some errors in his answer. You and your spouse qualify with your age and equity in the home. You are required to pay property taxes, fire insurance and any HOA on your own, but the loan grows as it essentially makes the payment, You don't pay principal or interest. When both spouses pass away the house has 12 months to be refinanced or sold by the heirs. The children or beneficiaries/heirs can ask for an additional 12 months giving them 24 months to sell or refinance. It's a good choice for aging homeowners who want to stay in their house but don't have enough income to be comfortable. They are expensive, shop around. The homeowners take a class, provide income to qualfy that can make the taxes and insurance payments. Call if you have deeper questions 949-784-9699 NMLS 324082.

$commenter.renderDisplayableName() | 10.17.19 @ 17:31

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