Articles and Blogs

February 18^th 2022 - Philip Roe

With all of the different mortgages out there, it can be difficult to keep track. So, for those eligible for reverse mortgages, it is just another option on the table to be aware of. Knowing the benefits of a reverse mortgage is a good place to start.

Being educated on the subject will leave you better prepared to get the loan that you need. Here is what you need to know about reverse mortgages, how to quality, and the benefits (and downfalls) of this type of mortgage.

Reverse Mortgages: What are They?

Before we can get into the pros and cons of reverse mortgages, we must first know what they are. It’s the type of loan that lets you get money through the equity in your home. The cool thing about a reverse mortgage is that there is no need to sell your home.

You may also have heard of a reverse mortgage as an “equity release.” According to regulations, borrowers are able to take up to 55% of the current value of their home through a reverse mortgage. Of course, that maximum amount depends on three things:

• The appraised value of your home
• Your Lender
• Your Age

Reverse mortgages get paid back under a number of conditions: the home is sold, you move out, or the last borrower on the title passes away. So, that means that you won’t have to make any payments on your reverse mortgage until those conditions are met.

Keep in mind that you will owe more interest on a reverse mortgage the longer that you go before making a payment. Not only that, at the end of the loan you might have less equity than you did before.

Who is Eligible for Reverse Mortgages?

Reverse mortgages aren’t for everyone, however. There are a few important prerequisites that must be met when applying for this type of loan. The first is that you must be on the title as one of the homeowners and you must be at least 55 years old.

On this type of loan application, all of the individuals listed on the title need to be on the application. Not only that, but they all must be at least 55 years old. Depending on the lender, you may be required to seek independent legal counsel. The lender may also require that you show proof of that legal counsel.

Lenders will take a few factors into consideration when you apply for a reverse mortgage. They will take the area in which live into consideration. The type of home that you live in, the condition of your home, and the overall appraised value of the home. Lastly, your age and the ages of any other people that are registered on the title will be taken into consideration.

Finally, the home that is being used for the application has to be your primary residence. Depending on the area in which you live, this should mean that you live in the home for at least six months of the year.

How Does a Reverse Mortgage Work?

Before we get into the benefits of using a reverse mortgage, it is helpful to understand how the loan works. Any outstanding lines of credit or loans have to be paid off prior to applying for a reverse mortgage. This includes not only the mortgage but home equity line of credit (HELOC) as well.

The money from a reverse mortgage is applicable for just about anything that you want. Use it to help with your regular bills, to repay debts, cover any outstanding healthcare expenses, or to pay for repairs and improvements to your home.

Just keep in mind that having a reverse mortgage may limit the other potential financing options out there. That can mean problems when trying to obtain something like a HELOC.

Even better, you get the money from the reverse mortgage through two means: one large, lump sum or some of the money up front with the rest coming over time. Just be certain to ask whether there are any fees or restrictions from the lender.

What are the Pros of Reverse Mortgages?

Knowing the pluses of a reverse mortgage are beneficial before actually applying. The great thing about reverse mortgages is that there are benefits. The first of which is that you don’t have to make regular loan payments as you would with a traditional mortgage.

You also have the ability to turn some of the value built into the home into cash. Even better, you can do so without having to sell the house. If that weren’t enough, the money that you borrow on a reverse mortgage isn’t taxable.

In most instances, there will be options on how and when you can receive the money from the loan. Lastly, the money won’t impact the Guaranteed Income Supplement (GIS) or Old-Age Security (OAS) benefits that you may or may not be getting. Having that flexibility can be hugely important.

Who to Ask About a Reverse Mortgage?

The first place that you need to start when inquiring about reverse mortgages is with the team here at Lotus Income. We have years of experience that can get you the answers that you need. The most important thing when it comes to finding a reverse mortgage is knowledge. Being armed with the answers to your questions can mean the difference between a favorable loan and one that you regret.

Call our team today or check out our FAQ page to find the answers to your questions. We can get you started down the path to a reverse mortgage today.