A reverse mortgage is a financial product designed for homeowners who are typically aged 55 or older, allowing them to convert a portion of their home equity into cash without selling their home. Unlike traditional mortgages where borrowers make monthly payments to the lender, a reverse mortgage pays homeowners, effectively turning their home’s equity into a source of income. Here are the key features and considerations regarding reverse mortgages:
- Contract Duration: Typically 30 to 60 days.
- Credit Score Requirements: No minimum credit score but good history is recommended.
- Homeownership and Residency: The homeowner must own and occupy the home as their primary residence. Vacation homes or investment properties do not qualify.
- Loan Limits: The amount that can be borrowed through a reverse mortgage is based on factors such as the home’s appraised value, the borrower’s age, and current interest rates. There are also maximum limits set by HUD for HECMs.
- Repayment Obligation: Borrowers or their heirs have the option to repay the reverse mortgage balance and keep the home or sell the home to cover the debt.
- Disbursement options:
1. Lump Sum: A one-time, upfront payment.
2. Tenure: Regular monthly payments for as long as the borrower lives in the home.
3. Term: Monthly payments for a specific term, such as 5 or 10 years.
4. Line of Credit: Access to a line of credit that can be used as needed.
5. Combination: A combination of lump sum, tenure, term, and/or line of credit options. - Compensation: Both lender and Borrower paid compensation.