A reverse mortgage can be accessed by homeowners who are above 62 years old. In simple terms, a reverse mortgage helps the owner of the home convert a portion of their home equity into hard cash. A loan of this sort is called a reverse mortgage since the traditional method of payback to the lender is reversed in these loans.
In a traditional mortgage, the borrower makes payments to the lender. However, in this case, periodic payments are made by the lender to the borrower. A reverse mortgage helps people who are of retirement age with limited incomes use the money that they invested in their homes to pay off other debts, spend on living expenditure, and afford health care. There are no restrictions placed on the borrower on how the money from a reverse mortgage can be used.
In order to be a lender, a person has to be a part of the National Reverse Mortgage Lenders Association. Every lender requires a license in order to carry out a reverse mortgage. It is this association that determines the terms and conditions that influence the loan amount of a reverse mortgage. Currently, these factors include:
- Age (in the case of a couple, they consider the age of the younger spouse)
- Value of the property
- Rate of interest
- Lesser of appraised value / HECM FHA mortgage limit of $625,500
When it comes to a reverse mortgage, it is important to make the decision of whether you want a large lender or a small lender. Theoretically all lenders will offer you the same deals however, the fees and service levels will differ from lender to lender. When you deal with a small lender, you will be able to establish a closer relation with the loan officer but on the other hand, a large lender might give you access to a better deal.