Homeowners who are 62 and above can borrow against a portion of their home equity with a reverse mortgage. Your home equity is the difference between your remaining debt and your current home value.
With a reverse mortgage, your lender – not you – will make a payment to you. The loan is first used to pay off the existing mortgage and the remaining funds are at your disposal to use as you please. These mortgages help older, retired borrowers supplement their income instead of paying the monthly mortgage.
There are a few other conditions apart from being 62 years and above to get a reverse mortgage:
- You can only get it on a primary residence and not a vacation home or second residence.
- You need to take a reverse mortgage counseling session mandated by the Department of Housing and Urban Development (HUD) to take out a home equity conversion mortgage.
- There will also be a financial assessment to meet the loan requirements.
- you shouldn’t have any federal debt like a student loan or income tax.
- Your real estate must meet the necessary property requirements.
Your lender will first conduct a home appraisal to determine the present value of your home. Then, the existing mortgage is paid off. After this, your lender pays you back either a lump sum, line of credit, or monthly payments based on the terms of your agreement. You can use this money as you wish and it isn’t taxable. For instance, if your home is worth $400,000 and you owe $100,000 on the mortgage, the equity on your home is $400,000 – $100,000 = $300,000.
.
