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How a Reverse Mortgage Works

Aug 6, 2008
You might already have heard of a reverse mortgage but do you know how it works? Reverse mortgage are reverse mortgage loans, where you borrow money but do not pay it back while you are living in your home.

Your mortgage lender will calculate the maximum amount of money that you are eligible to borrow and that figure is based upon the value of your home. Also taken into consideration is the age of the youngest borrower and your expected interest rate.

There are several ways you can receive the money that is loaned to you. You can get the money paid to you on a monthly basis, which can help supplement your monthly income. Or you can receive the loan as a large sum. Maybe you have some repairs that need to be made to your home, this is a good option.

You can hold off on actually receiving the money right now, just knowing that it is available for the future can give you peace of mind. It's almost like having a line of credit available for any unforeseen emergencies.

Another is option is doing both, you could take part of the loan now and then save the rest as a balance that is available to you in the future. Regardless of which option you choose, you do not make any payments.
The lender will keep track of any amount of money you receive from the reverse mortgage.

Every month, the lender adds interest and calculates your new debt amount. Obviously, the more money you are receiving and the longer it takes to pay off, the greater amount of debt you are in.

When it comes time to sell your home or in the event of death, the loan amount is now due to be paid. This includes the amount of money you received plus interest fees. If you decide to sell your home, you will just pay off the reverse mortgage loan with your profit from the sale and keep any balance remaining.

If you decide to move, you will need to pay off your reverse mortgage or your lender will foreclose. If you pass away, your home will then be under the Last Will and Testament or the state laws. This is up to your heirs to pay off your reverse mortgage and keep the property, or sell the home and pay off the loan.

A common question is always centered on the act of not making payments. What happens if you owe more than what the home is worth? When a mortgage lender calculates the maximum amount you can receive from the reverse mortgage, they factor in what is called a "fudge" factor. This makes it unlikely that you will ever owe more than what the property is worth.

Yet, if you do live a long life there is the possibility that you can owe more than what your home is worth. Regardless of the amount you owe, your mortgage lender is limited when it comes to getting payment from your home's value. If you happen to owe more than what it is worth, your lender cannot collect from you.

This is just some basic information on reverse mortgages. There are many reputable companies that can talk to you and help you get a reverse mortgage.
About the Author
Christina Costa, a freelance writer, recommends eQuoteGrabber.com for refinancing your home where you can receive help with all of your mortgage needs in seconds! Visit http://www.eQuoteGrabber.com
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