How A Reverse Mortgage Works

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					Presented by Daniel Toriola
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How A Reverse Mortgage Works By Brad Stroh

Ever wonder how a reverse mortgage works? For folks that have lived in their home for a long time, they may very well be sitting on a gold mine. Home prices have increased greatly over the last thirty years, and nationally have nearly doubled in value over the last ten years. This has left a great many homeowners with valuable equity in their homes and many different options to access that equity, home equity loans and mortgage refinances being the most common. For older Americans, there is another, less common option that is growing in popularity as home prices have increased and baby boomers have moved closer to retirement age: the reverse mortgage. But do you know what it is, and do you know how a reverse mortgage works? So what exactly is a reverse mortgage? A reverse mortgage is a loan product that allows homeowners 62 years of age and older to use their equity to generate tax-free income, without having to sell the home or take on a new mortgage payment. In fact the reverse mortgage is exactly what the title states, the reverse of a standard mortgage. With a standard mortgage, the borrower (or homeowner) makes monthly payments to the lender (or bank or mortgage company), in order to pay back the loan that the lender originally lent to for the purchase or refinance of the house. This payment includes interest that the lender charges the borrower for the loan. In a reverse mortgage, the situation is reversed; the lender makes monthly payments to the borrower. However, in both a standard and reverse mortgage, the lender secures their loan amount by using the house as collateral. There are a few factors that determine how much money a borrower will receive from a reverse mortgage, such as the value of the home, borrower’s (and co-borrower’s) age, current interest rates and any lending limits that may be standard for your geographic area. As a rule of thumb, the older the borrower and the more valuable the home, the larger the available loan amount. Homeowners can choose how they want to receive their payments, either as a lump sum, monthly payments or as a line of credit. The line of credit is the most popular option, with nearly 60% of reverse mortgage borrowers choosing to the option to draw income or a lump sum off the line at the time of their choosing. And the proceeds from the reverse mortgage can be used for anything, completely at the discretion of the borrower, though most borrowers use the funds for home repairs or modifications, health care expenses, to settle other debts, or for their long-planned vacation! Reverse mortgages are available for nearly all property types with the exception of co-ops, though co-op owners in some metropolitan areas, specifically New York, should have local options. If you are in retirement, or nearing retirement, and think this may be the product for you, I will go into more detail about exactly how a reverse
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mortgage works. For reverse mortgage borrowers with an existing mortgage, that mortgage will need to be paid off completely, so that the new reverse mortgage will be the only lien on the house. If the proceeds from the reverse mortgage are not ample to pay off the existing mortgage, the borrower will need to access savings or other sources to pay off the rest of existing mortgage amount. In this scenario, the borrower won’t have access to any additional funds from the reverse mortgage; however, they will no longer have a mortgage payment! The more common scenario is one in which there is a small or no mortgage on the home and then the borrower is able to access nearly the full amount of the reverse mortgage to use at their discretion. No monthly payments are due on the loan and the loan is repaid when the moves or sells the home, passes away, or ownership otherwise changes hands. If the home is sold and the proceeds of the sale exceed the mortgage amount, the balance belongs to the borrower or their heirs. One very important facet of the reverse mortgage process is the consumer counseling that is required for borrowers contemplating a reverse mortgage. Your lender can help you find counseling agencies and most programs are approved and monitored by HUD and/ or AARP. The counseling is required to make sure that the terms and risks of the program are clear to you. Counselors are obligated by law to review with you all of the implications of the new mortgage, and what your potential options are. Overall, for older Americans contemplating a stress-free retirement, the reverse mortgage may be just the option! Just make sure that you know your options and goals… and how a reverse mortgage works. Brad Stroh is currently co-CEO of Freedom Financial Network and If you would like more of Brad’s, please visit the information on

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Reverse Mortgage: Loan For The House-rich But Cash-poor By Rony Walker

Do you need to finance a home improvement? Pay off a current mortgage? Supplement your retirement income? Take care of healthcare expenses? If so, a reverse mortgage lender will do wonders for you. With a reverse mortgage, you can turn the value of your home into cash without having to repay your loan each month. When Is It Repaid? A reverse mortgage is a loan taken out against your home. The best thing about it is that you don't have to pay it back for as long as you live there. Reverse mortgage lenders only collect repayment when you - die - sell your home - or move to another house and live there permanently What Types Are Available? There are three basic types of reverse mortgages, and they are classified according to who the reverse mortgage lender is. 1. Single-purpose reverse mortgage This is offered by non-profit organizations, state governments, and local agencies. 2. Federally-insured reverse mortgage This is also know as HECM, or Home Equity Conversion Mortgage. It is backed by the U.S Department of Housing and Urban Development, or HUD. 3. Proprietary reverse mortgage The reverse mortgage lender of this type of mortgage is a private company. Are There Other Differences Between Types? The three types of reverse mortgages also differ in other aspects, particularly in their terms and manner of use. 1. Single-purpose reverse mortgage This has very low costs, and you can only qualify for one if you have a low to moderate income. There are two drawbacks to this type of reverse mortgage. First, it is not available everywhere. Second, it can only be used for the purpose specified by the government or by the reverse mortgage lender. Such a purpose may range from paying for home repairs to paying off property taxes. 2. HECM and proprietary reverse mortgage These tend to be costlier than the other two home loans. In fact, the up-front charges could be very high. These two types of reverse mortgage, however, are not without their advantages. For one, many reverse mortgage lenders offer them. For another, HECM and proprietary reverse mortgage lenders do not ask for proof of income or a bill of good health. Finally, these two mortgages may be used for any purpose. How Much Can You Borrow? In single-purpose reverse mortgage, the amount is set according to how much you need. In a proprietary reverse mortgage or HECM, the reverse mortgage lenders offer amounts depending upon a combination of factors, such as:

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- the type of reverse mortgage you choose - present interest rates - the appraised value of your home - your address - your age Reverse mortgage lenders put a high premium on age. As a rule of thumb, the older you are, the more valuable your home is. Secondly, the less mortgage you have left to pay, the more money you can get.

How Will You Get What You Borrow? A reverse mortgage lender gives you cash in several ways: 1. all at once, in a single chunk of cash 2. as a credit line, wherein you can decide when and how much of the money available is paid to you 3. on a regular basis, with the amount and schedule of payment fixed 4. as a combination of the three previously mentioned payment methods How Do You Qualify? To be eligible for a reverse mortgage, you must be at least 62 years old and must live in your own house. If you are cash-strapped, a reverse mortgage may just be the answer you need. Be sure to research about this type of loan first, though. In loans, as in all other things, it is better to be safe than sorry. Looking for a mortgage lender (, particularly a reverse mortgage lender ( Visit and get a free mortgage quote ( today!

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