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Help in Understanding a Reverse Mortgage

The possibilities when it comes to a mortgage loan are actually much broader than most people think. One in particular that is often overlooked and misunderstood is the reverse mortgage. This private loan is actually insured by the federal government, being unique from other mortgage loans in that a portion of the equity built up in the home is converted to cash. That money can then be used by the homeowner for whatever purpose wanted.

A reverse mortgage has specific qualifications and restrictions, making it an option for the elderly, often for financial security. For a person to qualify for a reverse mortgage, the homeowner's income is not included in the approval process. Even so, for the loan to be approved, a number of factors are considered to determine the loan amount, interest rate charged, and even the amount of monthly payment.

The primary requirement for approval regarding a reverse mortgage is that the lender has to be at least 62 years of age. Another requirement is that the homeowner needs to be the legal owner of the property, and currently living in the home. Finally, for a reverse mortgage loan, the lender must undergo a counseling session with the Home of Urban Development, otherwise known as HUD.

Again, the homeowner choosing a reverse mortgage can use the money in whatever way wanted, meaning vacation, home improvement, bills, etc. The money coming from a reverse mortgage can be distributed in a number of ways such as monthly payment, lump sum, a specified line of credit, or even a combination of the three. The one thing that people need to understand with a reverse mortgage is that the loan is not paid back to the lender until the homeowner passes away, moves, or decides to sell the property.

The primary benefits associated with a reverse mortgage include the equity being used for whatever purpose wanted, the money is 100% tax free, and there is no income verification. The disadvantages is that interest is variable, which could cost the remaining family members to repay more than the initial reverse mortgage, and generally, a mortgage like this is expensive in that there are application fees, appraisal costs, insurance, closing costs, and in some instances, a monthly fee charged by the lender for managing the loan.

Before a person decides to go with a reverse mortgage, he or she needs to weigh all the pros and cons to determine if this is the right option. The best thing the homeowner can do is conduct online research and/or talk to a reputable mortgage lender, someone that specializes in reverse mortgages, to ask questions and gain a full understanding of all variables.