WHAT IS A REVERSE MORTGAGE AND HOW CAN IT HELP YOU?
There are two ways to obtain a Reverse Mortgage — The first is to use your home’s existing equity and the second way is simply to purchase a property using a Reverse Mortgage. Today we are going to address buying a new home with a Reverse Mortgage.
One of the requirements of obtaining a Reverse Mortgage is that the owner lives in the house at least six months of the year.
To purchase with a reverse mortgage, a much larger down payment is required. Typically, about 50% down payment. However, this can change depending on the age of the borrower.
So, here is how it works when purchasing newly: the borrower puts about 50% down, and they get a loan for the other 50%.
The difference from a regular mortgage and the reverse mortgage, is that instead of making a principal and interest payment on that loan, the borrower is not required to make a payment at all. They would simply pay their taxes and insurance, but there would not be a home payment made.
Each month, the amount of interest that would have been paid, is added to the loan balance. Their loan balance simply increases each month by the amount of interest.
Over time, as years go by, the loan balance increases. And that loan increases each month until the borrower either sells their home or passes away, and then the loan has to be repaid.
The reason the lender typically only lends about 50% is because they don’t know how long the borrower will live, or will keep their home.
There is reverse mortgage 101.