What Is A Reverse Mortgage?
A reverse mortgage is a loan that uses home equity as the underlying collateral. The catch is: the loan requires no repayment for as long as the borrower(s) live in the home. There are very specific requirements in order for a borrower to qualify for a reverse mortgage, being led by an age requirement. Reverse mortgages are funded by mortgage lenders but are ultimately insured by the FHA (Federal Housing Administration). In simple terms, a reverse mortgage is a government-insured loan which converts home equity as the collateral for a lender. These types of loans are often referred to as Home Equity Conversion Mortgages (HECM). One of the prevalent characteristics is that the borrower(s) must be 62 years or older.
The AARP reports that these types of mortgages are often used by their borrowers to support living expenses, medical expenses, and other expenses that arise later in life.
To provide more detail, a reverse mortgage is a mortgage that uses the home’s built-up equity as the underlying collateral. So rather than receive monthly payments from a typical mortgage, a lender of a reverse mortgage will have an equity stake in the home’s built-in equity which replaces the monthly mortgage payment. The home and its value become that much important when dealing with reverse mortgages. Other factors that are considered in the underwriting process are the age of the borrower(s), life expectancy, in addition to others.
In order to be eligible for a reverse mortgage, a borrower must be 62 years or older. If there is currently a mortgage on the home, the mortgage may be paid off from the proceeds of the reverse mortgage. Unlike traditional mortgages, there are typically no credit or income requirements for reverse mortgages. There are sometimes property-type restrictions, such as a mobile home or condominiums. But even with these property types, MortgageLoan Corp. can find suitable options for a reserve mortgage applicant.
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