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How Does a Reverse Mortgage Work? The Top 8 Questions Answered

When you’re first starting out and learning how does a reverse mortgage work you probably have some questions about these mortgages even after reading through some of the material. Here are the top 10 questions that are commonly asked and their answers so that you can better understand this type of loan.
1. How do I qualify?
You have to be at least 62 years old and either own the house you’re living in or owe only a small balance on it. If you live in a mobile home it may or may not qualify for a reverse mortgage. You’ll have to ask about your specific mobile home to find out if it is accepted or not. As well, there can only be three borrowers on the loan and each person must reside in the home permanently.
2. When do I need to pay it back?
You are not going to have to pay anything back on this loan as long as it remains active and that he is indeed the beauty of it. Instead of making repayments every month on your small balance you will be receiving money instead. The loan will be repaid once you sell the property, pass away or move out of the house. At this time the money earned from the home sale will be used to pay the loan off including all costs and accrued interest. At no time will your assets be touched to pay back the loan and the assets belonging to your heirs will be safe as well.
3. Is this loan more expensive than a regular loan?
Yes, it is. When compared to a regular mortgage it is more expensive but that is to be expected. The lender is not expecting to get his money back for many years in some cases so needs to charge a higher rate to make up for this time factor. You’ll be able to choose between different interest rates, just like you would with a regular loan, to find the best deal. You’ll have your choice between a variable or a fixed-rate reverse mortgage and will have to examine these options to see which one would be the best in your case. When you’re figuring out how does a reverse mortgage work, it’s definitely not a case of “one-size-fits-all”.
4. How much am I allowed to borrow?
The maximum allowed is $625,500 but your loan will be determined based on three different factors: your age, the interest rate and the home’s appraised value. Basically you will receive more money if you’re home is worth a lot and the interest rate is low.
5. How will I be paid?
You have different options to choose from to receive your payments. You can either opt to receive monthly payments, a lump sum payment or a line of credit. If you still owe money on your home, however, you won’t be able to choose the monthly payment package since you will have to use either the line of credit or the lump sum payment to pay off the remaining balance.
When making your choice you’ll also want to make sure that you’re taking taxes into account. You may want to consult with an accountant first before making a final decision to find out which option is best for you.
6. Do I need to stay in the house?
Yes. This is one of the conditions for taking out a reverse mortgage. You’ll need to stay in the home until the loan period has ended. If this is not possible, the reverse mortgage can be held in default and the home sold.
7. Can I get a reverse mortgage on my vacation home?
No, you can only apply for a reverse mortgage on your principal residence. Vacation homes will not be considered for this type of loan. As well, if you have an investment property it will not qualify.
8. Do I need to have my heir’s approval?
No. As the homeowner you have the right to make the decision on your own. Although it would be nice to let your heirs know what you are planning, they have no way of stopping you from or forcing you to take out a reverse mortgage.
It is important that you do your own research on the different types of reverse mortgages available before making a firm commitment to go ahead and get one. There are a lot of questions that you may need to ask and it’s best to find a professional that will sit down and explain everything to you in detail. You certainly don’t want to feel rushed when you’re learning how does a reverse mortgage work. You’ll need to get the proper answers so that you can feel confident when it’s time to make your final decision.
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