What is a Reverse Mortgage
Reverse mortgages are a form of “equity release.” What this means is that a person who has a “lifetime mortgage,” or a 15- or 30-year mortgage that returns the equity that is available in the property to the homeowner. The reverse mortgage has special rules. Some of the basic rules include the homeowner needing to be at least 62 years of age or older, and there must be sufficient equity in the property to support the loan.
One of the main differences in a reverse mortgage is that the obligation to repay the loan is deferred, meaning that while the debt is registered to the homeowner, the homeowner is not required to make payments on the loan until one of three things happens. The loan is repayable upon the death of the borrower, upon his or her departure from the home, or the sale of the home. The reverse mortgage rules allow the homeowner to leave the home for up to 364 days consecutively without needing to sell and repay the loan.
While the proceeds from the reverse mortgage need not be repaid, the loan still collects interest. The interest charges are then added to the lien (the reverse mortgage debt), accumulating until repayment. The proceeds from the loan can be paid in several ways. The most popular is the “lifetime mortgage” or tenure payments. This is a monthly payment that will continue so long as the homeowner is alive. Then, there is the “term payment,” which is a monthly payment that is scheduled for a specific number of months or years. The last form of payment on a reverse mortgage is a lump sum payment, which is a payment made all at once in full. Consult with your bank or other financial adviser before taking a reverse mortgage, as the benefits and negatives are different for everyone based on various situations.