-1. With a regular mortgage you make monthly payments until you pay off your loan. With a reverse mortgage, however, the payment stream is "reversed." The lender makes payments to you.
It works like this: You owe $100,000 on an existing mortgage. And based on your age, your home's value and prevailing interest rates, you qualify for $125,000 through a reverse mortgage program. Under this scenario, you will be able to pay off the entire existing mortgage - something you must do to qualify for a reverse mortgage - and still have $25,000 left over to use as you wish.
-2. You can choose to receive the tax free money from a reverse mortgage in one lump sum, as fixed monthly payments or as a line of credit. And this cash can be used for whatever strikes your fancy - a vacation, home remodeling. Virtually anybody over 62 can qualify for a reverse mortgage, without having to pass a medical exam or meet stringent financial criteria.
-3. You make no payments on principle or interest while a reverse mortgage is outstanding. The loan comes due when for whatever reason you no longer occupy your home. If the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or to your estate.
-4. A reverse mortgage is virtually always adjustable rate, never fixed. That might be because they are not for a fixed length of time, coming due when the borrower leaves his/her home.
CAUTIONARY NOTES ABOUT REVERSE MORTGAGES
-1. Many of the same costs that someone pays to obtain a home purchase loan, or to refinance their existing mortgage, also apply to reverse mortgages. And in many cases, these fees and costs - origination fees, mortgage insurance premium, appraisal fees - can amount to between 4 and 5 per cent of the mortgage itself.
So, if you plan to be moving soon, it is not a matter of finding an alternative to a reverse mortgage, Jason Berman customer service liaison for New Retirement, said. It is a matter of finding the right alternative.
-2. Government regulations stipulate that before you can receive a reverse mortgage, you must speak with a counselor. You should be certain that this session not only familiarizes you with the basics of reverse mortgages but also helps you better understand the specifics of your own lending agreement.
-3. When you obtain a traditional mortgage, you can borrow as much as 80 - 85 per cent of the home's value. The comparable figure for a reverse mortgage is generally lower: 33 - 67 per cent. Specifics depend upon the age of the borrower, the value of the house and other factors.
