You may have heard the term "reverse mortgage" before - but do you really know what it means? Today, we're here to explain what a reverse mortgage is and how it might be useful to you financially.



If you have purchased a home and have considerable home equity, you are able to borrow against the value of your home. You can borrow up to 55% of the current value of your home. The maximum amount you're able to borrow will depend on your age, your home's appraised value and/or your lender. With a reverse mortgage, you can receive this money either as a lump sum or taking some money up front and the rest over time.


 

What's the difference between a forward mortgage and a reverse mortgage?
 

A forward mortgage is the most common kind of mortgage. This is when you go to a lender to be approved for a substantial loan to purchase a home. A reverse mortgage doesn't require the homeowner to make any loan payments. Instead, the entire loan balance becomes due and payable when the homeowner or borrower dies, moves away permanently or sells the home.



 

Who is eligible for a reverse mortgage? 

 

To be eligible for a reverse mortgage, you must be a homeowner and at least 55 years old. Your lender may also ask you and the other individuals to get independent legal advice. They may ask for proof that you received this advice.
 

When you apply for a reverse mortgage, your lender will consider: 

The home you're using to secure a reverse mortgage must also be your primary residence. This usually means you live in the home for at least six months a year. A reverse mortgage is a great way to convert your home equity into income to live out your retirement if you are cash poor.



 

How a reverse mortgage works

 

Before getting a reverse mortgage, you must first pay off and close any outstanding loans or likes liens of credit that are secured by your home. These can include a mortgage and a home equity line of credit (HELOC). You can use the money you get from a reverse mortgage to do this. 

You can use the remainder ot the loan for anything you wish, such as to: 

A reverse mortgage may limit other financing options secured by your home. You may not be able to take out a HELOC or similar products.


While it is a great way to convert your home equity into cash, there are also some drawbacks worth consideration. A reverse mortgage will also result in fewer assets for you and your heirs. If you do decide to look for a reverse mortgage, you should certainly comparison shop before you decide on a particular company. 


If you think a reverse mortgage could be right for you, please reach out to a financial advisor first. This may be a good route for you, but there may be better alternatives depending on your specific financial condition.



 

Thank you for reading today’s BLOG!



 
 

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