What do we Understand by Reverse Mortgage?

Collateral security is a term which most of the people might have come across when they read about finance and loans. It plays a vital role when homeowners apply for loans. A term known as reverse mortgage could defined as the loan for the senior homeowners for using one portion of their house as a collateral security. This kind of loan is not required being repaid until and unless last surviving owner of the particular property moves out or expires. At that moment the estate is given about six months for repaying the balance from reverse mortgage or even sells the house for paying the balance.

In this scenario it states that remaining equity of the property would be inherited and the estate would not be liable for a price lessor than balance for reverse mortgage. One moment a question is asked regarding reverse mortgage simple answer which most would hear is:

In order to become eligible for the HECM reverse mortgage all the homeowners need to be minimum of 62 years in age. This limit has been set by the FHA. Moreover it is essential that home is owned free by the applicant and there happens to be no liens pending against the property. In case there remains the mortgage balance then that could be paid entirely from proceeds of this reverse mortgage loan during the time of closing. Usually there is no such income or the credit score which is required for applying forreverse mortgage.

Other property of reverse mortgage which needs to be highlighted is that reverse mortgage cannot be outlived. This means that the time till the homeowner lives at the property being primary residence while maintain each home as per the rules set by FHA the loans would never become due. At the time of the death of the homeowner home ceases for being a primary residence over a period of 12 months or more. The option with homeowner’s estate would be repaying reverse mortgage or putting the entire home for sale. In a scenario where the equity of the house goes beyond the loan amount the remaining equity gets paid back to estate.

Finally discussing the limits of a loan the amount is dependent on the 4 factors which are:

·           Age

·           Prevailing Interest rates

·           Appraised value for the house

·           Government Imposed Lending limits.


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