Home Equity Conversion Mortgages in a Nutshell

There is hope for seniors who are struggling to make ends meet. A home equity conversion mortgage, also called a reverse mortgage loan, allows seniors to use the equity in their home to obtain extra cash.

A reverse mortgage loan differs from a traditional home mortgage in several key respects. With a traditional home mortgage, the borrower, using the home as collateral, agrees to pay a set amount each month for the period of the loan. Pursuant to a traditional mortgage, the homeowner must pay the entire amount of the mortgage, regardless of whether the home has decreased in value.

That is, provided the borrower is using the home as their primary residence and continues to meet other requirements, a reverse mortgage loan requires no monthly payments. Instead, the lender receives ownership of the home after the death or move of the borrowing homeowner. If the family or estate wishes to keep the property, they can pay off the outstanding loan balance.

If an applicant for a reverse mortgage loan already owes a mortgage on the property, the new loan proceeds must first be used to pay off that mortgage. Then, the homeowner can receive a lump sum payout of cash, monthly payments of smaller amounts, or a line of credit that can be accessed as needed. A senior homeowner that owns his or her home outright may receive the entire value of the home’s equity after allowances for interest rates and loan costs.

Since home equity conversion mortgage payments are not taxable and do not affect Social Security or Medicare benefits, reverse mortgage programs are appealing to many seniors who are looking for extra cash to cover their expenses.

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