A reverse mortgage loan is an option of home mortgage loan refinancing and is used to obtain some of the equity that has been built up in the borrowers property. Equity is the difference between what a borrower owes on his or her home mortgage loan and what the property is actually worth. If the property is worth more than what the borrower owes on the mortgage they have equity and can leverage that equity. The borrower can obtain a 2nd mortgage or a home equity line of credit, they can use this cash for anything. For people who are over 62 years old they have an additional home mortgage loan refinancing option, a reverse mortgage. A reverse mortgage enables the 62 or older borrower to leverage their mortgage into additional tax free income. The borrower does not have to give up the property or the title, or take on an additional monthly mortgage payment. The borrower is essentially being paid to have the mortgage rather than making monthly payments on the home mortgage loan. Once the refinancing is complete the borrower can take the money out in one lump sum, be paid monthly or take the funds out whenever they need.
A reverse home mortgage loan is best used when the borrower does not have an additional mortgage. A reverse mortgage is designed to help pay for the daily cost of living, medical bills, and regular living expenses. It is not advisable to pursue a mortgage refinancing in the way of a reverse mortgage if the borrower does not have a need for money, and be advised that like all loans these funds will need to be paid back to the bank. With a reverse mortgage there is usually a monthly service fee of around 30 dollars. A reverse home mortgage loan must be repaid back the the bank when one of these three events occur, the borrower stops living in the home, borrower sells the home or the borrower becomes deceased.
There are a few risks to a reverse home mortgage loan, just like any mortgage loan refinancing option. Probably the biggest risk is if the borrower sells the property and does not make what was owed in the reverse mortgage, then the borrower is responsible to pay the difference. Most people over the age of 62 who are in need of a loan like a reverse mortgage loan will generally not have extra cash to pay any difference on a mortgage loan. If the borrower sells the home in a short period of time after its generation say a few years, the borrower may not have made any money as he/she could not recoup the up front cost.