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What Is A Reverse Mortgage Loan And How Does It Work?

Standard Lenders
What Is A Reverse Mortgage Loan And How Does It Work?

Chances are that you’ve seen a commercial for reverse mortgage loans before, but few people actually know what they are. It turns out that reverse mortgages are actually a powerful way to access the equity in your home, and supplement your income in your later years of life. Want to learn more about reverse mortgage loans? We’ve put together an in-depth overview of everything you need to know about reverse mortgage loans below:

A reverse mortgage is a form of mortgage that allows you to access the equity in your home through monthly installments, a lump sum payment, or a line of credit that’s accessible at any time. It’s called a reverse mortgage because instead of you paying the bank money every month, the bank pays you every month. The best part about this is that the payments made to you each month are tax-free! Although a reverse mortgage may sound great, there are a few criteria you have to meet before getting one:

  • Your reverse mortgage has to be taken out on your primary residence – it can’t be used on your second home or vacation home.
  • You must be at least 62 years old to take out a reverse mortgage.
  • If you are taking out a home equity conversion mortgage (a special type of reverse mortgage insured by the Department of Housing and Urban Development), you must attend a counseling session.

While having a lender send you money each month sounds too good to be true, it’s not. With a reverse mortgage, you are essentially taking distributions from your home’s equity each month for the life of the loan. Each month, you will lose a little bit of equity in your home, and receive a monthly installment in return. This money can be used for practically anything you want, depending on the type of reverse mortgage you get. (We’ll cover the different types of reverse mortgages in the next section.)

However, it’s important to remember, that even though the lender is paying you every month, you will still have expenses related to your home that you’re responsible for paying. These expenses include:

  • Property taxes
  • Home maintenance and repairs
  • Homeowners insurance and flood insurance (if applicable)

If you fall behind on any of these items, the lender is able to foreclose on your home, so be sure to stay up to date with your taxes, insurance, and repairs!

A proprietary reverse mortgage is a type of privately issued reverse mortgage. You can generally use the funds for anything you want, such as a vacation at the beach, or just some extra spending money. However, it’s important to remember that it does not come along with federal insurance and protections that a HECM reverse mortgage comes with. Proprietary reverse mortgages don’t have a loan cap like HECM reverse mortgages, so they may be your only option if you have a very expensive home.


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