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A reverse mortgage is a type of home loan that allows homeowners over the age of 62 to convert the equity in their home into cash. The loan is repaid when the homeowner moves out of the home or passes away. Unlike a traditional mortgage, which requires the borrower to make monthly payments, a reverse mortgage pays the borrower.
Here's how a reverse mortgage works:
Qualification: To qualify for a reverse mortgage, you must be at least 62 years old and own your home outright or have a low mortgage balance.
Counseling: Before you can apply for a reverse mortgage, you must undergo counseling from a HUD-approved counselor. This counseling session will help you understand the pros and cons of a reverse mortgage and how it could impact your financial situation.
Loan Amount: The loan amount for a reverse mortgage is based on the equity in your home, your age, and current interest rates. The older you are and the more equity you have in your home, the higher the loan amount.
Payment Options: There are several payment options for a reverse mortgage. You can receive a lump sum payment, monthly payments, or a line of credit. You can also choose a combination of these payment options.
Repayment: The loan is repaid when the homeowner moves out of the home or passes away. If the homeowner passes away, the heirs can choose to sell the home and repay the loan or refinance the loan to keep the home.
Fees: Reverse mortgages can be expensive, with fees and closing costs that are typically higher than traditional mortgages. You may be required to pay an origination fee, mortgage insurance premium, and other fees.
In summary, a reverse mortgage is a loan that allows homeowners over the age of 62 to convert the equity in their home into cash. The loan is repaid when the homeowner moves out of the home or passes away. Before you consider a reverse mortgage, it's important to understand the pros and cons and how it could impact your financial situation. Work with a Parada Mortgage Loan Officer and HUD-approved counselor to determine if a reverse mortgage is right for you.