A reverse mortgage is a unique type of loan that is available to homeowners who are at least 62 years old. A reverse mortgage allows homeowners to access their equity and turn it into cash. These loans are designed to give homeowners access to their equity for living expenses or medical bills, among other things, and there are no monthly payments made to us.
With a reverse mortgage, we make a disbursement to the borrower. The loan amount and interest cause the balance of the loan to increase each month, as no payments are made.
Qualifying for a reverse mortgage requires no minimum credit score. Also, income requirements are less stringent when compared to other types of mortgage loans.
A regular mortgage is used to refinance a mortgage or buy a home, which means making monthly payments to pay back the loan. With a reverse mortgage, you borrow against your home. There are no monthly payments required, and the loan is due when the home is sold or when the borrower dies or moves out of the home. Unlike a traditional loan, the balance continues to increase with a reverse mortgage.
Reverse mortgages are often compared to HELOCs or second mortgages, although the difference is there are no monthly payments. Home equity loans and HELOCs have strict credit and income requirements, while a reverse mortgage has fewer income and credit requirements.
Reverse mortgages can offer a higher maximum loan amount, as well. With a reverse mortgage, the age of the borrower and the type of loan determines the maximum loan amount.
While there are many reasons to think about a reverse mortgage, the following are among the more common reasons.