Reverse Mortgages
The term mortgage is used for a long-term loan that people take, either to buy a new home or to raise money from their existing homes. Mortgage companies offer a unique option to elderly people, where they receive money from the lenders to live in the house. Borrowers are not required to make any payments as long as they continue to live in the same house. The repayment of the loan has to be done in case of the borrower's death, sale of the house or when it is no longer the principal residence. This option is popular among the elderly homeowners, as reverse mortgage allows them to convert a part of equity in their homes into cash.
There are three basic types of reverse mortgage, namely single-purpose reverse mortgage, Home Equity Conversion Mortgage or HECM and proprietary reverse mortgages. Single-purpose reverse mortgages are provided by certain state and local government agencies and nonprofit organizations and they can only be used for the one purpose specified by the lender. HECM's are supported by the U. S. Department of Housing and Urban Development or HUD and have no income or medical requirements.
Generally, to qualify for reverse mortgage, homeowners must be not less than 62 years of age and must have the home as their principal residence. The earnings from a typical reverse mortgage, without other special features such as annuity, are usually not taxable. The major difference between a conventional loan and a reverse mortgage is that instead of the borrowers paying monthly to the lenders, to pay off their loans, the mortgage company gives them money to stay in their own home. Therefore, reverse mortgages are most suitable for people who have a tangible asset like a house but do have liquid funds to meet their financial obligations.
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