How Does a Reverse Mortgage Work?

The Basics of Reverse Mortgages 

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A reverse mortgage is when a lender takes the equity in your home and converts it into payments to you. Equity in your home is defined as the difference between what your home is valued and the debt owed on the home. For instance, let’s say your home appraised value is 400,000 and your loan debt has been paid down to 100,000 you have $300,000 in equity. These equity payments continue for as long as the upkeep (maintenance) of the property occurs and insurance and property taxes for your home are paid.

How Do You Pay Back a Reverse Mortgage?

This type of advance is not required to be paid back until you move out, sell your home or pass away. In the latter case, the new homeowner, spouse of the former homeowner, or the estate would be expected to repay the loan.

What Are the Qualifications for a Reverse Mortgage?

To be approved for this loan, you would be required to undergo an assessment of finances to ensure that you are able to pay for property taxes, insurance, maintenance and home owners association (HOA) fees (if applicable). You must also meet requirements that include age, property type, making sure the home is in good condition, and you’ve paid off a good portion of your mortgage. You would also be required to attend counseling sessions to ensure proper education on reverse mortgages.


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