Seniors can take out a reverse mortgage and enjoy having available funds they can use for any purposes. Reverse mortgages are home loans which offer borrowers some cash through their home equity. Because a reverse mortgage may not have some of the lower rates and flexibility of other types of loans, it is imperative for borrowers to assess if this loan is right for them. It makes sense to know as much as information about the loan as they can.
How a Reverse Mortgage Works
A reverse mortgage uses homes as collateral. But, this type of loan is different in some ways than a standard mortgage. With this loan, the borrower gets money instead of pay money to their lender every month. Also, the loan amount tends to grow over time rather than sink with every monthly payment. This mortgage is available only to homeowners who are at least 62 years old who usually don’t have to pay back the loan until they move out of their home permanently.
There are many sources to get a reverse mortgage from. But, the Home Equity Conversion Mortgage (HECM) which can be obtained from the Federal Housing Administration is one of the best options. This loan is typically less expensive because of backing from the government. Also, this loan has consumer protections.
The Amount Borrowers can Receive
The loan amount that borrowers can obtain depends on various factors. Also, calculating the amount is based on the assumptions on the length of time the loan will last. The factors that are considered in calculating the loan amount includes:
- Home equity. A home with more equity means that owners can take out more loan money. A lot of borrowers choose to pay down their loan over a lot of years and ensure their mortgage is nearly paid off in full.
- Interest rate. Interest rates that are lower allow borrowers to use up their loan equity instead of cover interest payments.
- Age of the borrower. The loan’s youngest borrower impacts the amount borrowers can get and older ones can take out more. Borrowers are planning not to include someone younger to obtain a higher payout should keep in mind that a younger spouse would need to move out when an older borrower dies.
Borrowers can choose how to obtain the money from the loan. They can choose to get in the form of a lump sum, line of credit, period payments and a combination of them.