You may have heard of reverse mortgages through Fred Thompson's ubiquitous daytime television ads, but you may not know much about them or how they work. So let us take over for Fred and explain them in detail.
In essence, the reverse mortgage is a variation of a home equity loan that is used to provide income during the retirement years. You are borrowing a certain amount of money using the equity in your house as collateral. The difference is that with a reverse mortgage, repayment is not required until the borrower passes away, chooses to sell the home, or permanently moves out of the home. At that time, the home is sold to repay the loan plus accrued interest and other charges. Any surplus from the sale beyond these costs is remitted to the borrower or his/her estate.
Fixed-rate reverse mortgages must be tapped as a lump sum, while variable-rate loans may be structured as regular payments or as an available line of credit.
To qualify, you must be at least 62 years old, own your home outright or have sufficient equity in the home (usually 50 percent or greater), and live in the home as your primary residence. Additionally, the loan requires that you pay all applicable property taxes and regularly maintain the home.
As a safeguard against borrowers overextending themselves, new rules as of April 27, 2015, require lenders to review the borrower's finances prior to approval to ensure that the borrower has enough stable income to pay those ongoing costs. Lenders must assess your "capacity to pay" via income, and your "willingness to pay" via your history of recent payments. Have this proof in hand when you apply.
see more: http://www.thedenverchannel.com/financial-fitness/how-retirees-can-benefit-from-reverse-mortgages
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