As people live in their homes for many years, the thought of utilizing the equity is often a consideration. This extra money is often used for major expenses, such as house renovations, education costs, or to pay off debt. A reverse home mortgage is an option for those who have owned a house for many years. There is quite a bit to know about the process, so the following is pertinent reverse mortgage information that may be helpful.
What Are Reverse Mortgages?
This payment arrangement is a specialized loan that allows homeowners to change a portion of their equity into a liquid asset. This equity that builds up over years of making payments on a loan can be paid out to the owner. Many people confuse this with a standard home equity loan. There is a significant difference, however. With this type of arrangement, borrowers are not required to repay the money until the borrowers are no longer living in the house as their primary residence.
What Is the Difference Between a Home Equity Loan
In addition to the above, there are some additional differences between these two arrangements. With a standard equity borrower, the homeowner must make regular monthly payments on both the principal and the interest. A reverse mortgage is different in that it pays the homeowner. There are no payments to be made. The owner, however, will be required to pay all utilities, insurance premiums, and real estate taxes.
What Type of Loans Are Eligible?
The house must be a single-family dwelling or a unit with at least one unit occupied by the borrower to be eligible for this type of equity loan. Condominiums and any manufactured dwellings that meet FHA standards are also eligible. All reverse mortgage information and requirements must be followed in order to qualify.
Will the House Be Inherited?
One primary piece of information people have questions about is whether or not the house can be inherited after taking out a reverse mortgage. Once the house is sold or is no longer being used as a primary residence, the money paid out, the finance charges, and the interest must be repaid. Any additional money will belong to the estate and can be transferred to heirs. There will be no debt passed into the estate.
Can the Arrangement Be Cancelled?
According to federal law, the owner has three calendar days to change their mind and cancel out the loan. This process, called a three-day right of rescission, will be included in the reverse mortgage information provided by the lender. Always reiterate the need for this information and have it thoroughly explained. Lenders will often differ on how they approach this process. Make sure to have all contact information for the person or people who will be handling the cancellation as well as a copy of the lender’s policy.
This reverse mortgage information is just the tip of the iceberg. It is crucial to discuss the process with a reputable lender to ensure there are no questions before moving forward.