Reverse Mortgages

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3 Reasons You Might Need to Consider a Reverse Mortgage

There are several home equity financing options available, but reverse mortgages are a unique financial tool for seniors that want to tap into their home equity. Here’s everything to know about reverse mortgages and why they might be the best solution for seniors.

What is a Reverse Mortgage?

A reverse mortgage is a type of home equity financing for seniors. Instead of receiving a new loan for the equity in a home, reverse mortgage providers give cash for the equity. The balance is due back at a later point, generally when the loan recipient dies.

These are some common characteristics of reverse mortgages:

  • Age: The first requirement for a reverse mortgage is that the loan recipient is at least 62 years old.
  • Equity: A reverse mortgage requires a significant amount of equity in the property, in some cases requiring that the recipient be able to pay off the mortgage with the balance.
  • Terms: In most cases, reverse mortgages are paid back when the recipient dies, but it is also due when a home is sold, the recipient moves, or taxes and insurance aren’t paid on the property.

Reverse mortgage providers have stringent requirements on maintaining insurance and property taxes and keeping the property in good condition.

3 Reasons to Consider a Reverse Mortgage on a Home

While some reverse mortgage providers take advantage of seniors, there are reputable lenders that can connect people with the cash they need with flexible terms.

1. Payout Flexibility

Unlike a cash-out refinancing or home equity loan, a reverse mortgage offers flexibility in the payout options. Recipients can receive their payout in one of six ways:

  • Equal monthly payments (+ line of credit)
  • Equal monthly payments (annuity)
  • Line of credit
  • Lump sum
  • Term payments
  • Term payments (+ line of credit)

This flexibility means that seniors can choose to receive a significant payout all at one time or opt for a monthly payment option that supplements their cash flow.

2. Delayed Repayment Terms

Taking out a home equity loan or a home equity line of credit (HELOC) means that payments will be due within the next 30 days or so. That can be a burden for seniors that need more time to pay back a loan because they have a fixed monthly income.

The delayed repayment terms are one reason to choose a reverse mortgage over other home equity financing options. It can free up much-needed cash for other expenses.

3. Insufficient Credit History

Even with equity in a home, taking out a loan will require a credit check. Cash-out refinancing offers might be possible with fair credit, but home equity loans and HELOCs will generally require much better credit scores.

Reverse mortgages, on the other hand, don’t have a minimum credit score. They do require that seniors be current on any outstanding federal debt, though.

How to Find the Right Reverse Mortgage Lender

There are many unscrupulous reverse mortgage lenders out there. That’s why it’s important to research providers and loan options before signing any paperwork. Look for reverse mortgage lenders that are reputable and transparent.

Looking for the best reverse mortgage option for your situation? Contact Americas Funding Group to find out how we can connect you with the right loan.