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Reverse Mortgage
A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership.
Reverse mortgage works much like traditional mortgages, only in reverse. Rather than making a payment to your lender each month, the lender pays you. Unlike conventional home equity loans, most
reverse mortgage
do not require any repayment of principal, interest, or servicing fees for as long as you live in your home. Funds obtained from an
reverse mortgage
may be used for any purpose, including meeting housing expenses such as taxes, insurance, fuel, and maintenance costs. To qualify for an
reverse mortgage, you must own your home. The
reverse mortgage
funds may be paid to you in a lump sum, in monthly advances, through a line-of-credit, or in a combination of the three, depending on the type of
reverse mortgage
and the lender. The amount you are eligible to borrow generally is based on your age, the equity in your home, and the interest rate the lender is charging. Interest is charged at an adjustable rate on your loan balance; any interest rate changes do not affect the monthly payment, but rather how quickly the loan balance grows over time. This section also discusses advantages and drawbacks of each loan type.
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Because you retain title to your home with an
reverse mortgage, you also remain responsible for taxes, repairs, and maintenance. Depending on the plan you select, your
reverse mortgage
becomes due with interest either when you permanently move, sell your home, die, or reach the end of the pre-selected loan term. The lender does not take title to your home when you die, but your heirs must pay off the loan. The debt is usually repaid by refinancing the loan into a forward mortgage (if the heirs are eligible) or by using the proceeds from the sale of your home. This plan offers several
reverse mortgage
payment options. You may receive monthly loan advances for a fixed term or for as long as you live in the home, a line of credit, or monthly loan advances plus a line of credit
Reverse mortgage
loan advances are nontaxable. Further, they do not affect your Social Security or Medicare benefits. If you receive Supplemental Security Income,
reverse mortgage
advances do not affect your benefits as long as you spend them within the month you receive them. This is true in most states for Medicaid benefits also. When in doubt, check with a benefits specialist at your local area agency on aging or legal services office. This section describes how the three types of
reverse mortgage
-- FHA-insured, lender-insured, and uninsured -- vary according to their costs and terms. Although the FHA and lender-insured plans appear similar, important differences exist. |
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| Copyright © 2003,
California Mortgage Rate. |
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