Demystifying the Reverse Mortgage

The term is being heard by homeowners near and far, but what exactly is a "reverse mortgage?" It's a relatively new option, and one that is surrounded by many myths and misunderstandings.

When you get down to it, a reverse mortgage is a rather simple and straightforward option for many homeowners who can take advantage of the benefits that this mortgage method affords them. A reverse mortgage is a loan on a home that does not have to be paid back for as long as the homeowner lives in that home.

To qualify for a reverse mortgage, homeowners must meet certain criteria, and normally must be 62 years of age or older. This type of mortgage offers homeowners the benefit of taking out a home equity type of loan, without the obligation of having to make monthly payments to repay the money borrowed. With today's economy, and so many senior citizens living at or below poverty level, this relatively new mortgage program may offer the perfect opportunity for qualifying seniors to get back on their feet.

There are three main types of reverse mortgage programs offered today. They fall into three categories:

1. FHA Insured

2. Lender Insured

3. Uninsured

The exact details of each of these reverse mortgage types differ, and for homeowners thinking about pursuing a reverse mortgage program, a reverse mortgage counselor should be consulted to find out which type of reverse mortgage best suits your needs.

With a standard or "forward" mortgage or home equity loan, a home owner is responsible for making monthly payments to repay the debt of the loan. Reverse mortgages only require the homeowner or the homeowner's heirs to pay the loan back when the homeowner is no longer living in the home. If the homeowner decides to sell the home and move out, the loan will be paid back by the proceeds of the home sale. If the homeowner has passed on, and the heirs are responsible for paying the reverse mortgage back, the mortgage can be satisfied by rolling the reverse mortgage into a "forward" mortgage or selling the home and using the proceeds to satisfy the loan requirement.

When a homeowner does opt for the reverse mortgage option, there are three main ways that they receive the funds from the loan. Homeowners can receive a one-time lump sum in cash, a regular monthly cash disbursement, or an open credit line that allows the homeowner to determine how and when they need the funds paid to them.

If you, or someone you know, is a homeowner 62 years of age or older and is in need of cash to cover their daily living expenses or would like their home to provide a source of regular income, this is an option that is growing ever popular and should be looked into and considered.

TIP: If you do fall behind on your monthly payments, contact your creditors and explain the situation to them, they may be willing to work out a payment plan for you. Consider adding a note to your credit report describing your hardship. Contact the credit reporting agencies to do this.

Reprinted from Zongoo! Finances