A New Kind of Loan: In Reverse

A "reverse" mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways: all at once, in a single lump sum of cash; as a regular monthly cash advance; as a "creditline" account that lets you decide when and how much of your available cash is paid to you; or as a combination of these payment methods. No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older.

Other Home Loans

To qualify for most loans, the lender checks your income to see how much you can afford to pay back each month. But with a reverse mortgage, you don't have to make monthly repayments. So you don't need a minimum amount of income to qualify for a reverse mortgage. You could have no income and still be able to get a reverse mortgage. With most home loans, you could lose your home if you don't make your monthly payments. But with a reverse mortgage, there aren't any monthly repayments to make. So you can't lose your home by not making them. Most reverse mortgages require no repayment for as long as you — or any co-owner(s) — live in the home. So they differ from other home loans in these important ways: you don't need an income to qualify for a reverse mortgage; and you don't have to make monthly repayments on a reverse mortgage.

Rising Debt, Falling Equity

Reverse mortgages have a different purpose than forward mortgages do. With a forward mortgage, you use your income to repay debt, and this builds up equity in your home. But with a reverse mortgage, you are taking the equity out in cash. So with a reverse mortgage: your debt increases; and your home equity decreases. It's just the opposite, or reverse, of a forward mortgage. With a reverse mortgage, the lender sends you cash, and you make no repayments. So the amount you owe (your debt) gets larger as you get more and more cash and more interest is added to your loan balance. As your debt grows, your equity shrinks, unless your home's value is growing at a high rate. When a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. If you have the loan for a long time, or if your home's value decreases, there may not be any equity left at the end of the loan. In short, a reverse mortgage is a "rising debt, falling equity" type of deal. But that is exactly what informed reverse mortgage borrowers want: to "spend down" their home equity while they live in their homes, without having to make monthly loan repayments.

Need More Information

The above description on the Reverse Mortgage was extracted from the AARP web-site (http://www.aarp.org/revmort-basics/). This web-site provides one of the best descriptions for a Reverse Mortgage. However, more importantly, it breaks down the mortgage product information into key understandable terms and it provides an excellent discussion on what to know and look out for in evaluating whether this type of mortgage is good for you. Please review the AARP website for advantages and disadvantages of this product. Then, if the Reverse Mortgage meets your needs, please call or e-mail us to help you get the best terms and conditions.

.

First Call Mortgage Co., Inc 18 Constitution Drive, Suite 8 | Bedford, NH 03110 Phone 603-622-4100 x19 Fax 603-666-3249

This web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant. Privacy Statement