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Community Corner

What is a Reverse Mortgage?

Real estate expert and SOHA vice president Matt Epstein checks in with Patch readers to explain the benefits of a reverse mortgage.

What is a Reverse Mortgage?

Over the last couple of months, I have received a few letters from readers asking if they should get a reverse mortgage (loan) or a standard mortgage, and what type of advice I could give them on these types of loans.

A reverse mortgage is a loan that allows seniors over the age of 62 to get cash out of their primary residence without having monthly payments. The loan becomes due either when the property sells or when the borrower passes away. Instead of making monthly payments, with a reverse mortgage, the borrower receives either a lump sum or gets paid monthly payments. That is why they are called reverse mortgages. 

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Like many people, seniors have a lot of money tied up in their home. The only way to access the money is for them to get a regular home equity loan. The problem with a home equity loan for a senior is that these loans have monthly payments. For many seniors they either do not want or cannot afford another monthly payment.

For seniors with a fixed income, the option to receive monthly payments can be helpful.

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Some seniors want to tap into the equity in their primary residence and are not in need of additional income. They may want to make a home improvement or maybe purchase a second vacation house. The money that can be taken out of the house does not have to be used for anything specific. It can be used for anything that you want to spend your money on.

Another great thing about these reverse mortgages is that you do not need to have good or any credit. All you need to be is over 62 and have equity in your primary residence. The amount of the loan will vary depending on how old you are, how much equity you have in your house, and what the current interest rates are. 

Reverse mortgage loans are becoming more and more popular for a few reasons.  First off, with the aging population, people want to tap into their equity without having to sell their homes. Secondly, because interest rates are so low, the amount you can borrow is so much greater. Remember though, home values are down and the lenders will be looking at how much equity there is in the property before they do the loan.

One of the readers was concerned because they thought that after a while the bank could just come in and take the house if they stayed in the house too long.  That is not the case. You still own your house. The house is yours and your loan is not due until you move out of the house or you pass away. Once that happens, if there is additional equity after the loan is paid back, that money would go to you or your heirs. If you stayed in your house so long that you used up all the equity or even more, you or your heirs will not have to pay anything back.  

All the cost, like escrow, title or appraisal fees, will apply with a reverse mortgage. Just like conventional loan, there are different options, so be careful and make sure that you talk to a few different lenders when you are considering this.  Because these loans are regulated by the Federal government, you must complete a counseling session in order to get these loans. These sessions do not take a lot of time and the counselors will explain all of the options to you. You will not be able to get a loan until you complete the counseling and receive your certificate of completion.

I hope that this is helpful and thank you for sending in your questions.

Any questions of comments please contact Matt Epstein @ Prudential California Realty @ somatt@aol.com or (818) 789-7408.  Matt Epstein is considered the expert for real estate sales in the South/East San Fernando Valley.

 

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