Is Reverse Mortgage Loan For You?

Reverse mortgage loan is a type of home financing loan that has been around for about half a decade. Its first inception is in the year 1961 where the first ever reverse mortgage loan is made by Nelson Haynes from Deering Savings & Loan in Portland, ME to Nellie Young, a widow in his high school football coach. Although it has not been so popular back then, this type of mortgage loan has grown tremendously popular lately especially after the world has witnessed one of the worst global financial crisis of the 21st century. Seniors are caught in those hard times forcing them to tap into the equity of their homes to live on. Best of all, the income that they receive is 100% tax free.

A reverse mortage is a special type of home loan that allows ones to tap into their home equity for cash. The term "reverse" in the "reverse mortgage loan" means that it works in the exact reverse or opposite of a typical home loan. In a typical home loan, the borrower pays a monthly payment for a specific tenure to the lender until the outstanding amount is fully settled. The reverse mortgage loan on the other hand, allows one to convert a portion of the equity of their home into cash. The converted portion can be in the form of monthly cash payout or a lump sum payment. Since the home is probably one of the largest single investment made by an average American in the United States, understanding reverse mortage is very crucial and knowing how it can suit into one's needs can make a significant impact on one's finance and cashflow.  

A reverse mortgage loan can be great for people who are buying a second smaller home and simply do not qualify for a typical home loan. The beauty of reverse mortgage loan is that, one can get a lot of cash upfront. For example, John, 65 a retiree is staying in a house worth $300,000, Now that he intends to buy a $200,000 single family home in the suburb by the seaside where he can go fishing over the weekend, he can sell his primary residential home to own that new house. If he does that, selling the existing house for $300,000 then using that $300,000 to buy the $200,000 new house he would have $100,000 left for his savings. If he takes a $100,000 reverse mortgage on the new house, he would have $200,000 left for his savings, which is double of what he gets without reverse mortgage.

The eligibility for a reverse mortgage loan is specified as below. One must meet all these conditions before applying for one.

• One must be at least 62 years old to qualify.
• The existing mortgage balance of one's home is already paid off or at least the balance must be low and can typically be paid off at the closing with proceeds from reverse mortage loan.
• One must live in the home and the home can be a single family home, 1-4 units home, and condominiums and manufactured homes that meet the FHA standard requirements.
• The maximum reverse mortgage loan limit amount is $625,000.