What is a Reverse Mortgage?
A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.
Interest is charged like any other loan, except you don't have to make repayments while you live in your home - the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want.
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Who qualifies for a Reverse Mortgage?
The basic requirements to qualify for a reverse mortgage loan include: the youngest borrower on title must be at least 62 years old, live in the home as their primary residence and have sufficient home equity. Borrowers must also meet financial eligibility criteria as established by the lender.
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The product was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction how reverse mortgage proceeds are used.
The loan is called a reverse mortgage because instead of making monthly repayments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.
The borrower is not required to pay back the loan until the home is sold or otherwise vacated. As long as the borrower lives in the home he or she is not required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, homeowner's insurance and condominium fees (if applicable).
What is the downside to a Reverse Mortgage?
The loan balance increases over time as interest on the loan and fees accumulate. As home equity is used, fewer assets are available to leave to your heirs. Fees may be higher than with a traditional mortgage. (Ask us about our lower-cost options).