A reverse mortgage is created by the FHA to homeowners over the age of 62. The reason it is different from other loans is because the borrower is receiving payments from the loan and not making them.

The loan amount that the homeowner is eligible for is determined from the age of the youngest borrower and the appraisal of the home. The balance is not due until 6 months after the last surviving homeowner moves out of the home or passes away. It is the estate’s decision how they want to approach this. They can sell the home to repay the balance, or they can pay back the loan themselves to keep the home.

In 2006, an AARP survey revealed that the most frequent uses of a reverse mortgage are to pay for medical and daily living expenses. Also, many homeowners will use it to pay off an existing mortgage.

Eligibility

Requirements for a reverse mortgage are that all homeowners be over the age of 62 and that the mortgage on the home can be paid off with the proceeds from the reverse mortgage.

Home types

Most homes are eligible for a reverse mortgage. However those that own mobile homes, manufactured homes and coops do have some restriction.

Home equity loans

Requirements for a home equity loan are based on income and creditworthiness. However, with a reverse mortgage these are not even in factors in eligibility.

The amount of money that the borrower can take out is influenced by the interest rate, value of the home and age of the youngest borrower. The older that the borrower is, the more money that are eligible to take out.

Since borrowers are not making payments on the loan, they cannot be evicted or foreclosed on because of payments. It is important that the borrower does stay current on real estate taxes, insurance and maintenance.

Time

There are no time limits on a reverse mortgage. The loan will not be due until all homeowners have moved to a new permanent residence or have passed away.

Inheritance

When the homeowner moves out of the property or passes away, the estate can decide if they want to pay off the balance of sell the home to pay back the balance.

If the home sells for more than the balance, the heirs will keep the leftover equity. However, if the home sells for less than what is owed it is not their responsibility to pay for the money shorted.

Distribution of money

• Line of credit
• Lump sum
• Term
• Tenure