A reverse mortgage is a loan that can be accessed by homeowners who are above the age of 62. It helps the owner convert a part of their home equity into cash in hand. These kinds of loans are called reverse mortgages because the traditional payback stream of the mortgage is reversed in this case. Instead of the borrower making payments to the lender like in the case of a traditional mortgage, the lender makes periodic payments to the borrower. It helps people who are around the age of retirement and who have limited income use the money that they invested in their homes to pay off other debts they have, spend on basic living expenditure and pay for health care. The borrower has no restrictions on how the money got from a reverse mortgage can be used.
The biggest question when it comes to getting a reverse mortgage is – “If I take a reverse mortgage loan, will the bank own my home?” The answer is a simple NO. You will continue to have full ownership of your home. Reverse mortgages are a lot like traditional mortgages. You are basically just using your home as security for the loan while you borrow money. The payment for repairs, property tax and insurance still rests upon you. If for some reason you move out of the house, or you die, your family will have to repay the loan that will include the amount of cash borrowed with the regular fees and interest. In most cases you or your heirs will have to sell the house in order to pay back these loans. However, after repaying the loan if there is any money left you can keep the difference.
In the case where your heirs would like the keep the home, they will be required to pay off the loan immediately. If they cannot afford to pay off the loan then they will be required to take out a new mortgage and it will be just the same as buying a new home. For this to happen, they will be need to meet all the regular mortgage requirements which include a stable income, a credit check and the ability to afford a basic down payment.