How Does a Reverse Mortgage Work?

Posted on 08 December 2009

There are several people, who do not understand the word reverse in reverse mortgage. So, here I will explain you that what does the word reverse in reverse mortgage refers to.

A reverse mortgage is that type of mortgage in which a borrower pays to the lender monthly, the reverse mortgage lender pays to the borrower. And the most important thing is that in reverse mortgage there is no monthly back payments. That is how does a reverse mortgage work!


4 Facts regarding how does a reverse mortgage works

Here in this article I will explain you few facts about reverse mortgage.

1. Are you eligible for it?

Yes, you are if you fulfill all the qualifications required for it. First of all, you must be an American, age 62 or over and you must own a home, where you should have equity left.

The reverse mortgage can also be used by you for buying a new home and you are also able to use cash or the equity of your old home as a down payment. These are the basic things that are  necessary to have a reverse mortgage.

2. You get cash, so it is you who will decide that how the lender will pay you.

This type of loan is to help in your daily life. What it means is that you are free to decide, how the lender will pay you. And of course that depends on, what are your requirements. The choices that are there for you includes lump sum payments, monthly payments, credit line or a combination of all these.

3. How Much You Can Borrow?

There are three factors, that will influence on how much you can borrow. These factors include your age, the appraised value of your home and the interest rate.


What we can say, is that the older you are, the more expensive is your home and the lower will be the interest rate, so the more you can borrow. However, there might be a variation in situations state by state.

4. Mortgage Insurance is Compulsory.

The idea behind this insurance is, neither you nor the lender will meet any troubles with the back payment. If in case the loan capital, interest and the costs cannot be covered by the selling price of your home then the difference will be paid from the insurance.

If the case is that the selling price is bigger, then the difference will be paid to your heirs. That is how does a reverse mortgage work. When you move permanently away then the loan will be paid back, and all the costs. But this won’t happen very soon.

Counseling is compulsory for reverse mortgage

One thing that is considered to be a very important element is the counseling. What it means is that before getting approval for your application, you have to meet the counselor. This is a very useful meeting, as these counselors are high quality experts and they will give you very useful advices.

As you can see yourself that the loan can help you in your daily life in many ways by releasing cash money from the equity of your home. All this money belongs to you, for the reason that you have saved it during many years and for some necessary needs now you want to use it.

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This post was written by:

R. MAK. – who has written 325 posts on Loan Mortgage Credit!.

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