The National Reverse Mortgage Lenders Association, in its survey, found that homeowners aged 62 or older held $10.19 trillion in home equity in the third quarter of 2021. The finding is an all-time high measurement since 2000. This gives us a chance to decipher what a reverse mortgage is and how you use it.
As per Investopedia, a reverse mortgage can be used by those who are 62 or older. These buyers should have considerable home equity against their income and can receive the funds. In a reverse mortgage, funds can be received as a lump sum, fixed monthly payment, or line of credit. A reverse mortgage doesn’t require the homeowner to make any loan payments.
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Instead, the entire loan up to a certain limit becomes due or payable when the homeowners die or move away from the property. Some federal regulations are imposed which require lenders to structure the transaction in a way that doesn’t exceed the home’s value.
Eligibility for the reverse mortgage:
Anybody above the age of 60 can apply for a reverse mortgage loan.
Must own a house or in the case of a couple, one of them must have a house.
Minimum 20 years of property ownership.
Rented property or property used for commercial purposes is not eligible for the reverse mortgage.
Documents required for a reverse mortgage
Identity proof address
Proof property papers
Statement of accounts of the last 6 months of all banks having an account
Statement of the loan of last year
In the case of a reverse mortgage, lenders make the payment to homeowners. However, homeowners only pay the interest on the proceeds received. Then the interest is unfolded into a loan balance. This reduces the chance of homeowners paying anything upfront. The homeowner keeps the title to the home.
When a homeowner dies or moves, the property automatically goes to the lender to repay the reverse mortgage’s principal, interest, insurance, and fees. In certain circumstances, heirs pay off the mortgage to keep the home. They are not even taxable.
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