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A reverse mortgage is a loan specially designed to help people in their retirement to utilize the equity in their homes to their benefit. The program is specifically designed for people aged 62 or older that have considerable amounts of equity in their home or whose home is already paid off.

When you obtain a reverse mortgage, the lender provides the home owner a lump sum or monthly payment based on the available equity in the home. If the home is not paid off at the time of application, proceeds from the reverse mortgage will be used to pay off the home. A reverse mortgage can be the only lien on the home at any given time.

Recipients can use the reverse mortgage payments as a way to supplement their retirement income, or they can take the lump sum payment to pay bills or purchase a new home.

There are no monthly payments required on a reverse mortgage loan. Payment is made on the loan by selling the home after the owner leaves its possession. This may come through moving to a new home or passing away. After the owner is no longer in residence, the lender will place the home up for sale to recover the amount, plus interest, it had lent the former owner.

During hard economic times it may be difficult for the lender to recoup all of the loan from the sale of the home. In this event the lender may look to the heirs for the remaining balance of the loan. This scenario can be avoided by purchasing mortgage insurance through the Federal Housing Authority (FHA) at the time the loan is made.

All applicants will be required to go through credit counseling before they are approved for the loan. While credit worthiness is not a factor in being granted a reverse mortgage, because there are so many different types of reverse mortgages available, the applicant must be educated on their specific loan. It is a consumer protection rule that has helped many avoid selecting the wrong type of reverse mortgage.

Realtors may recommend using a reverse mortgage to purchase a new home because it allows the borrower to purchase their new home without having to wait to sell their old property. The borrower can simply move from the old home and the lender assumes the home and all responsibility to sell it to cover the loan.

About the Author:

First Alliance Home Mortgage is New Jersey's premier Mortgage Banker/Broker. Their experienced Loan Officers provide clients with the latest information on special government programs, equity acceleration, and how to choose the type of loan that best suits their needs. http://www.fahmloans.com

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