If you're over the age of 62 and have little income or assets, a reverse mortgage might be able to provide you with funds to help cover your living expenses. It works like this: A lender pays you back for equity in your home in installments over time—but only when you die, sell the property or permanently move away. Reverse mortgages are expensive and have risks, but they may be ideal for people who want to maintain ownership of their homes while still enjoying some financial stability.
What is a Reverse Mortgage?
A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home. You can use the money to pay off other debts, or simply enjoy the peace of mind knowing that this loan will never come due.
You do not have to be elderly or even retired to take out a reverse mortgage. The only prerequisites are that you own your home and are at least 62 years old (or 50 years old if disabled).
Who is Eligible?
If you're at least 62 years old, own your home free and clear, have a good credit score and meet the other requirements discussed in this article, then you may be eligible for a reverse mortgage.
How to Take Out Your Reverse Mortgage?
There are several ways to take out your reverse mortgage loan. You can get it as a line of credit or in one lump sum, but you may also choose to receive the money in installments. The amount of each installment is decided by you and your lender, though there are limits on how much the lender can pay out each year.
Depending on what option you choose, you'll be able to use some or all of this money however you want—it's up to you! If it's an installment loan, then each year will have its own payment due date; if it's a line of credit instead, that means all payments will be made at once and then used whenever needed throughout retirement years (and possibly into old age). A third option would be taking out more than what was owed on the home originally; this is where taxes come into play because they'll need claiming before any other withdrawals could occur—so keep those records close by if ever considering this choice!
What are the Costs?
The costs of a reverse mortgage are greater than those of an ordinary mortgage. You pay interest on the loan and some fees from the start, and you have to pay for an appraisal, credit report and title insurance. The most significant expense is that you must continue making monthly payments until you sell your home or pass away – there’s no way out! If you fail to make payments for two months in a row, the lender has the right to foreclose. Lastly, if you want to sell your house within five years of taking out a reverse mortgage (the average age at which Americans die), expect that it will be worth far less than it was when they first took out their reverse mortgage because interest rates may have increased significantly during this time period.
How Much Can I Take Out?
The amount you can take out is tied to your home's value and how much you still owe on it. For example, if your home is worth $250,000 and you owe $100,000 on the mortgage and have paid off $50,000 in equity (the difference between what the house is worth and what you owe), then only about 60% of that equity would be available for use in a reverse mortgage.
The other 40% goes toward paying off any outstanding debt or bills (like an outstanding car loan or credit card balance). And if there isn't enough money leftover after those payments are made to cover all of the available equity, then no one gets any money—it just goes back into closing costs.
Interest Rates for Reverse Mortgages
A reverse mortgage uses two interest rates. One is a fixed rate, while the other is a variable rate. The fixed rate stays the same for the duration of your loan, whereas the variable rate can change with market conditions and fluctuate on a monthly basis (or even more frequently). The reason for this dual-rate structure is to protect you from taking out too much money at one time as well as give you some protection if/when interest rates go up over time.
The big downside to having two different kinds of equity loans available is that it adds complexity and confusion when comparing mortgages from different lenders—and all things being equal, we like simplicity in life!
How to Qualify?
In order to qualify for a reverse mortgage, you must be 62 years old or older and own the home you live in. If you are married, your spouse must also meet these requirements.
You will not have to pay off your mortgage balance before receiving the proceeds of your reverse mortgage; however, should you decide to sell the property after receiving funds from a reverse mortgage and buy another house instead—or even move out of state—you'll need to repay any outstanding debt on it before doing so.
What about Taxes and Insurance?
When you take out a reverse mortgage, you continue to own your home and are responsible for property taxes and insurance. You can stay in the home as long as you live there. However, if you are unable to pay these expenses yourself, they will be deducted from any remaining loan balance before it is paid to the lender (which may not be enough).
If you sell your home during the life of your reverse mortgage or after its death benefit has been paid out, any remaining debt on the loan must be repaid first before any proceeds from that sale can be used by heirs or beneficiaries to purchase other housing at their discretion.
Little Income Solution
If you don't plan to move from your home soon, this could be the only kind of loan you would qualify for as a senior citizen with little income.
With a reverse mortgage, the borrower gets a lump sum of money all at once or in regular payments over time. To receive the funds, all they need is equity in their home; this is the difference between its market value and the outstanding balance on any mortgages that were used to buy it.
The money can be used for whatever purpose suits them best—it doesn't have to be spent on housing costs at all!
If you have a reverse mortgage, you will be able to live comfortably in your home for as long as possible. You can also use the money for whatever purpose you want, such as paying off medical bills or travel expenses. However, there are some downsides to consider before taking out this type of loan. For example, it costs more than an ordinary mortgage would. Also, if you plan on moving out of state then this may not be the best option because there are restrictions with how often someone can borrow from their reverse house loan while living outside their state of residence (every 12 months).