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Ever wonder how a reverse mortgage works? For folks that have lived in their home for a long time, they may very well be sitting on a gold mine. Home prices have increased greatly over the last thirty years, and nationally have nearly doubled in value over the last ten years. This has left a great many homeowners with valuable equity in their homes and many different options to access that equity, home equity loans and mortgage refinances being the most common. For older Americans, there is another, less common option that is growing in popularity as home prices have increased and baby boomers have moved closer to retirement age: the reverse mortgage. But do you know what it is, and do you know how a reverse mortgage works?

So what exactly is a reverse mortgage? A reverse mortgage is a loan product that allows homeowners 62 years of age and older to use their equity to generate tax-free income, without having to sell the home or take on a new mortgage payment. In fact the reverse mortgage is exactly what the title states, the reverse of a standard mortgage. With a standard mortgage, the borrower (or homeowner) makes monthly payments to the lender (or bank or mortgage company), in order to pay back the loan that the lender originally lent to for the purchase or refinance of the house. This payment includes interest that the lender charges the borrower for the loan. In a reverse mortgage, the situation is reversed; the lender makes monthly payments to the borrower. However, in both a standard and reverse mortgage, the lender secures their loan amount by using the house as collateral.

There are a few factors that determine how much money a borrower will receive from a reverse mortgage, such as the value of the home, borrower’s (and co-borrower’s) age, current interest rates and any lending limits that may be standard for your geographic area. As a rule of thumb, the older the borrower and the more valuable the home, the larger the available loan amount. Homeowners can choose how they want to receive their payments, either as a lump sum, monthly payments or as a line of credit. The line of credit is the most popular option, with nearly 60% of reverse mortgage borrowers choosing to the option to draw income or a lump sum off the line at the time of their choosing. And the proceeds from the reverse mortgage can be used for anything, completely at the discretion of the borrower, though most borrowers use the funds for home repairs or modifications, health care expenses, to settle other debts, or for their long-planned vacation! Reverse mortgages are available for nearly all property types with the exception of co-ops, though co-op owners in some metropolitan areas, specifically New York, should have local options. If you are in retirement, or nearing retirement, and think this may be the product for you, I will go into more detail about exactly how a reverse mortgage works.

For reverse mortgage borrowers with an existing mortgage, that mortgage will need to be paid off completely, so that the new reverse mortgage will be the only lien on the house. If the proceeds from the reverse mortgage are not ample to pay off the existing mortgage, the borrower will need to access savings or other sources to pay off the rest of existing mortgage amount. In this scenario, the borrower won’t have access to any additional funds from the reverse mortgage; however, they will no longer have a mortgage payment! The more common scenario is one in which there is a small or no mortgage on the home and then the borrower is able to access nearly the full amount of the reverse mortgage to use at their discretion. No monthly payments are due on the loan and the loan is repaid when the moves or sells the home, passes away, or ownership otherwise changes hands. If the home is sold and the proceeds of the sale exceed the mortgage amount, the balance belongs to the borrower or their heirs.

One very important facet of the reverse mortgage process is the consumer counseling that is required for borrowers contemplating a reverse mortgage. Your lender can help you find counseling agencies and most programs are approved and monitored by HUD and/ or AARP. The counseling is required to make sure that the terms and risks of the program are clear to you. Counselors are obligated by law to review with you all of the implications of the new mortgage, and what your potential options are.

Overall, for older Americans contemplating a stress-free retirement, the reverse mortgage may be just the option! Just make sure that you know your options and goals… and how a reverse mortgage works.

For more articles on Reverse Mortgage, visit: http://www.bills.com/reversemortgage

Justin has 5 years of experience as financial adviser; his key areas are consolidation, insurance, debt relief, mortgages etc. For more free articles and advice visit http://www.Bills.com.

Article Source:http://www.articlesbase.com/mortgage-articles/how-a-reverse-mortgage-works-907452.html

Hey all - here is a really insightful article on Reverse Mortgage. These types of loans are becoming more popular as citizens continue to age in the U.S. and are looking for new ways to fund their retirement. Enjoy.

A reverse mortgage can help provide financial security to the elderly in their retirement years. It is one way to borrow against your home. Generally, the older you are, the more you get; and the more your home is worth, the more cash you get. The loan can be taken in a lump sum, as monthly payments, as a line of credit or a combination of these options. When the borrower dies, sells the home or moves out permanently, the heir will have to repay the loan, principal plus interest-most likely by selling the property.

Here are some reverse mortgage basics:

Who is eligible? You must be 62 years old and own your home, which must be your primary residence. There are no income requirements as the loan is secured by the home. You remain responsible for making property repairs, paying your property taxes, and home-owner insurance.

What is the process? You need an appraisal and inspection just like you do for a traditional mortgage. If you take out a government loan, counseling is mandatory.

What are the loan options? There are two types of loans: the Home Equity Conversion Mortgage (HECM) and private reverse mortgage without federal mortgage insurance. HECM loans are insured by the US government; with a private loan, the lenders assume the risk.

The main drawback of a HECM loan is that the Federal Housing Authority caps the appraisal, which affects the loan amount. Typically, the HECM loan would give about 45 percent of the home value, while the private reverse mortgage give up to 65 percent. The amount owed to the bank will never exceed the value of the home.

How much can you get? It depends on the home’s value, location, interest rates, and the age of the younger borrower if there are co-owners. Expect to get between 50 and 70 percent of the appraisal price of your home.

The closing costs such as appraisal and legal fees, origination fee, mortgage insurance premium and monthly service fees which you can roll into the loan are to be paid up front.

The Author is VP of marketing for the Premium Real Estate Directory where Real Estate Agents and Brokers can submit their websites. Post properties for sale in the Real Estate Classified Ads section of the site.

Article Source:http://www.articlesbase.com/mortgage-articles/reverse-mortgage-basics-880328.html

The term reverse mortgage is popping up everywhere these days. TV ads, circulars, radio spots, etc. are all pitching this “new” way to supplement retirement.

For the past 75 years, owning a home has been a great way to create wealth. In fact, for many Americans reaching the retirement age, the equity build up in their home is their only real asset they possess. Reverse mortgage is a fairly conservative and prudent way to tap into this asset and create a stream of income needed for retirement assistance. Or, the monthly income could be used to take care of an unexpected financial need that is usually related to health care costs in the elderly.

One must be careful because reverse mortgage is not a standard refinance, equity loan or a second loan on your home. One must research it and realize there can be some pitfalls.

So what is a reverse mortgage?

Exactly as the term suggests, the regular dispersment of money is reversed. Instead of the homeowner paying the lender on a predetermined schedule, the lender pays the homeowner. Payment is used here loosely because it is your money after all. One great point is there aren’t any payments due until the home owner moves or dies.Reverse mortgages are viewed by most real estate and mortgage experts as a good vehicle of choice. They help many retirees handle any unforeseen financial difficulties and more importantly,helps them to have a way to retain their independence and dignity.

Can any one qualify for a reverse mortgage?

No, you must be eligible. The eligibility requirements for a reverse mortgage are:

* You are a homeowner.

* You are 62 years of age or older.

* You own your home free and clear, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan.

* You live in the home.

* In case of HUD, you are also required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of an HUD-approved counseling agency and a list of FHA approved lenders within your area.

* Upkeep of property taxes and staying out of bankruptcy are also required.

Remember to start with research when looking into a reverse mortgage. There should never a cost associated with getting information on reverse mortgages. Ask for a written copy of everything that should include an address and a phone number so that you can confirm the data.

 Can’t remember how many times I’ve been asked “What is a reverse mortgage”? Reverse mortgages are a great way to get a loan using your primary asset. As in all cases of financial lending, the flexibility comes at a price. A reverse mortgage is a loan using your house and is referred to as a “rising debt, falling equity” kind of deal.

To compare reverse mortgage to a more traditional one, the type of mortgage commonly used when buying a house can be classed as a “forward mortgage”. To qualify for forward mortgage, you must have a steady source of income. Because the mortgage is secured by the asset, if you default on the payments, your house can be taken from you. As you pay off the house, your equity is the difference between the mortgage amount and how much you’ve paid. When the last mortgage payment is made, the house belongs to you.

On the other hand a reverse mortgage process doesn’t require that the applicant have great credit, or even that they have a steady source of income. The major stipulation is that the house is owned by the applicant. Generally, there is also a minimum age required as well, the older the applicant, the higher the loan amount can be. As well, reverse mortgages must be the only debt against your house.

Differing from a conventional “forward mortgage”, your debt increases along with your equity. Instead of making any monthly payments, the amount loaned has interest added to it - which eats away at your equity. If the loan is over a long period of time, when the mortgage comes due, there may be a large amount owed. Furthermore, if the price of your home decreased, there may not be any equity left over. On the flip side, if it was to increase, this could allow for an equity gain, but this isn’t typical of the marketplace.

When deciding how to draw money from the reverse mortgage, there are a few options; a single lump sum, regular monthly advances, or a credit account. There are conditions in this kind of mortgage that would warrant the immediate repayment of the loan; the mortgage will be due when the borrower dies, sells the house, or moves out.

Failure to pay your property taxes or insurance on the home will undoubtedly lead to a default as well. The lender also has the option of paying for these obligations by reducing your advances to cover the expense. Make sure you read the loan documents carefully to make sure you understand all the conditions that can cause your loan to become due.

Ken Charnly is a personal finance publisher whose website Online Loans is dedicated to quality information on online loans. For quality information and for all your online loan needs visit and Apply for Loans Online

Article Source:http://www.articlesbase.com/mortgage-articles/understanding-reverse-mortgages-844345.html

It can be very tempting to take out more money than you need with a loan when you learn that you qualify for a larger amount that you had originally planned.  This can sometimes be a good thing, especially if you underestimated the amount of money that you need.  However, this is also a way to get yourself into deep financial trouble that you can spend years trying to overcome.

It is always a good idea to borrow responsibly when taking out a reverse mortgage, or any other type of loan for that matter.  When you receive your reverse mortgage quote, it is a good idea to resist the initial urge to borrow more money than you had planned for.  Although it may be a temptation to have all of that extra money in your bank account, you will likely regret the decision many years down the road and at that point it will be too late to take the decision back.

Once you have initially resisted the urge to borrow more when you receive your reverse mortgage quote, it may be an option to borrow more down the road.  For example, if you find that you under calculated the amount of money that you need, you might be able to borrow more money with your reverse mortgage.  This way, you made a responsible decision from the beginning and are still only borrowing the money that you need.  You will likely also feel much better about the decision to borrow more money if you know that you really need it.

More information on reverse mortgages is just a click away.

Article Source:http://www.articlesbase.com/mortgage-articles/borrowing-responsibly-when-taking-out-a-reverse-mortgage-838165.html