Reverse Mortgage

A reverse mortgage is often offered to senior citizens. They are able to use this to release the equity built up in their home. These lifetime mortgages are used to pay off debt, perhaps travel the world, or do whatever the senior wants with the money. It allows them the freedom to pursue some of their lifetime dreams.

Reverse mortgages are only repaid once the owner dies or moves, and the home is sold. The proceeds from the sale of the home are used to repay the loan. Normal loans consist of the homeowner paying monthly payments and owning the home once the mortgage is paid off. No payments are required at all from the senior home owner and all interest is applied to the total amount owed. The company issuing the reverse mortgage then places a lien on the property so that upon death or sale, the company is assured it will get paid.

Sometimes, if the value of the home has been increased, the senior homeowner can take out a second mortgage.

More and more seniors are using reverse home mortgages as part of their retirement planning. Due to this increasing trend, there are now safeguards set in place to protect the senior homeowner and the company equally. To make sure that both parties understand the legalities of such a loan, counseling sessions with an independent counselor must occur. This is all done before the application is even processed so if there are other options available, the senior home owner can review those options.

Choosing to go ahead with a lifetime mortgage is similar to applying for a normal mortgage. you can still choose from a fixed interest rate or variable rate. Whichever the senior homeowner chooses, there is a lifetime cap. While there are still fees required to be paid while applying for this reverse mortgage, there are programs in place so these fees can be financed. The senior homeowner then does not have to worry about the cost coming out of their own pockets. Before the senior homeowner signs all the paperwork and commits to this type of mortgage, the lender is required by law to disclose the total amount of the loan to the applicant. This includes all foreseeable fees and possible interest over the life of the loan so that the applicant knows and understands everything before signing the agreement.

One of the benefits of a lifetime mortgage is that there is no maturity date. No matter what happens, the loan cannot come due during the lifetime of the senior homeowner. Only upon death or sale of the home can the lender request payment. Also, if the applicant is able to pay off the reverse mortgage early, there are no penalty fees for doing so. Once the papers have been signed, the senior homeowner has three days in which they can change their mind and back out of the deal at no cost to the senior. It works like a “buyer’s remorse” but is called the “right of rescission”.

What needs to be paid upon death of the senior homeowner or sale of the home shall never exceed the value of the home. This includes all fees, interest, and funds used. For many senior citizens, this type of lifetime loan is exactly what they need to be able to fulfill their dreams.