Significance

• Many homeowners age 62 and older struggle with mortgage or other debt payments, yet have a large percentage of equity in their home. A reverse mortgage allows the borrower to reduce or remove their debt without adding additional monthly debt payments. This product can help many homeowners to remain financially independent for years longer than without the reverse mortgage.
  
  

Function

• There are no credit requirements for a reverse mortgage, a credit score is not pulled. However, the borrower does have to provide the lender with a valid Social Security number and date of birth, which will both be verified. This is to allow a borrower with financial hardship the ability to procure this type of mortgage debt.
  
  

Types

• There are three types of reverse mortgages: a line of credit, a lump sum payment, and a monthly payment. With the line of credit, the borrower can charge up the line as needed and no monthly repayment is required. With a lump sum payment, a one-time payment of all available equity is given to the borrower. Lastly, with a monthly payment, the borrower is given a monthly payment to supplement his income. The borrower has the ability to choose which option he would like.
  
  

Considerations

• A reverse mortgage is repaid by the proceeds of the sale of the borrower's home, not by monthly payments. Therefore, there are no asset or income requirements on reverse mortgage debt. The only requirements are available equity and a valid Social Security number and birth date. Once these are verified, an appraisal is ordered on the property. The loan amount allowed is calculated based upon the borrower's age and the equity in the home, which is assessed through the appraisal.
  
  

Misconceptions

• A reverse mortgage does not operate any differently than a regular mortgage at the point of sale of the home. The debt is paid in full, however, any remaining profit gathered at the point of sale is given to the homeowner. Additionally, a reverse mortgage does not allow a borrower to mortgage the home's full value, therefore, in most cases, there will be a profit from the sale of the home.