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What Is A Reverse Mortgage?

Jan 31, 2008
You may have heard a lot recently about the concept of a Reverse Mortgage. So what exactly is it?

A reverse mortgage is designed for older homeowners age 62 and up. It enables them to convert part of the equity in their home into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment.

It is called a reverse mortgage because instead of a homeowner making payments to a lender, the lender is making payments to the homeowner. Sounds like a pretty good option if you're a senior citizen, don't have a lot of income, but do have a lot of equity in your home. Additionally, the income from a reverse mortgage doesn't have any limits. It can be used on anything from healthcare and food to taking a dream vacation or buying a new car.

You can receive your money in a variety of ways.

* Lump sum
* Fixed monthly payments either for a set term or for as long as you live in the home
* A line of credit
* A combination of the above.

However, there are some stipulations.

The amount of money a person is eligible to receive depends on their age. If the reverse mortgage is going to a couple then the age of the youngest person in the couple is used.

The amount you are able to receive also depends on your home's appraised value, interest rates, and in some circumstances it depends on the lending limit in your area. In general, the older you are and the more equity you have in your home, the more money you can get.

Most, but not all, homes are eligible for a reverse mortgage. If your family is a single-family home, a multi-unit property, a manufactured home built after June 1976, a condominium, or a townhouse - you're eligible. Manufactured homes built before 1976 and most cooperative housing are ineligible.

Lastly, you may still qualify for a reverse mortgage even if you have an existing mortgage. The general guidelines say that your reverse mortgage must be in a first lien position, which means any existing debt must be paid off. Often people use the reverse mortgage to pay off any existing mortgage debt.

As the population ages, reverse mortgages will likely gain in popularity. Like any mortgage, it is important to weigh the decision carefully and take time to investigate the company you're dealing with. Your home and your personal finances are not decisions to be made lightly.
About the Author
Eddie Lamb founded Advantage Business Partnership in January 2000 as a traditional offline business. In 2002 the company launched its first retail website marketing a selection of downloadable informational products. For more information visit: http://www.LiveMortgageFree.com
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