Reversible Mortgage

A reversible mortgage is a loan that is constructed to be the opposite of a conventional mortgage. Instead of making a monthly payment on your loan, you may elect to receive a payment instead. Instead of building equity, you convert the existing equity in your home into funds. This type of mortgage may be a viable option for seniors who have been paying mortgages on their homes for many years. With supplemental cash flow each month, homeowners can remodel their homes, pay medical expenses or generally augment their monthly budgets.

Under the terms of a reversible mortgage, you continue to own your home for as long as you reside in it. You must pay property taxes, make home insurance payments and maintain your dwelling to standards set by the Federal Housing Administration. You must be at least 62 years old to qualify, and your home should be your primary residence. You cannot apply for this mortgage on a vacation property. If you decide to sell your home during the course of a reversible mortgage and it sells for more than the amount due on the mortgage, you or your heirs are eligible to retain the difference.

The prospect of incremental cash each month may be attractive, but several elements should be considered. Several fees are generally required. These include closing costs, a loan origination fee, mortgage insurance payments, as well as a monthly mortgage service charge. All charges vary by the amount of equity involved, as well as prices set by your lender. A typical way to estimate these costs is to use the Total Annual Loan Cost, or TALC formula, which indicates the costs as an annual percentage. While your lender should never charge you a fee to discuss a reverse mortgage with you, you will need to pay for mandatory counseling service from HUD. Speak with your lender to determine if this type of mortgage is right for you, your circumstances in life, as well as your heirs.