Reverse Mortgage Overview

A reverse mortgage is a type of mortgage loan which is implemented to release the home equity in the real property by way of a single lump sum payment, a series of multiple payments, an increasing line of credit, or a collection of all three.
The term reverse mortgage is a widely used term in the United States and in the United Kingdom, reverse mortgage is called as lifetime mortgage. In the United States, for receiving a reverse mortgage loan, an individual has to be minimum 62 years of age.

There are no requirements for credit scores or minimum income, nevertheless, there are certain other requirements. To qualify for a reverse mortgage loan, the borrower must ensure that he has repaid any existing mortgage with the money received by way of reverse mortgage, as well as extra personal funds if necessary.

In case of maximum reverse mortgages, the borrower is allowed to use the proceeds received from reverse mortgage for any purposes. A case of bankruptcy which is not yet resolved might slow down the process.
Inferior value mobile homes are not eligible to qualify for reverse mortgages. If the value of the property has increased after removing a reverse mortgage loan, the borrower can also avail a second or third reverse mortgage on the increased equity of the house, however, in some countries which include the USA, a reverse mortgage has to be the first and sole mortgage on the real property.

In case of a reverse mortgage, the liability of the homeowner for repaying the loan is postponed till the time the owner of the property passes away or the house is sold to another customer, or the owner goes for aged care.

In case of a typical mortgage, the mortgage lender receives monthly amortized payments from the mortgage borrower and after each payment is made, the equity gets increased for the property, and when the amortization period is over (usually 30 years) or the mortgage has been repaid completely, then the property is released by the lender. For a reverse mortgage, the houseowner does not make any payments and the total interest is clubbed with the lien on the property. When the homeowner is receiving monthly payments, subsequently the debt on the property starts to increase every month.

In the United States, the most popular reverse mortgages include the FHA (Federal Housing Administration) insured Home Equity Conversion Mortgage (HECM) which encompasses more than 90% of the home equity loans in the country. With reference to the statistics provided by the National Reverse Mortgage Lenders Association (NRMLA), this project underwent 83% rise in the first nine months of 2006 in comparison to the same period in 2005.

A reverse mortgage is similar in nature to a home equity loan, however, there is a distinction in that the banks are contracted to the house in case of a reverse mortgage, and on the contrary, a typical home equity loan is enrolled as a mortgage on the title.

The leading financial institutions who offer reverse mortgage loans include the following:

Bank of America
Wells Fargo
American Association of Retired Persons (AARP)
National Reverse Mortgage Lenders Association
Financial Freedom
American Reverse Mortgage


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Last Updated on : 24th August 2013