The Basic Rules of a Reverse MortgageHomeownership is an excellent investment for many people. It provides security, stability, and a sense of pride in ownership. However, as life progresses, it may become challenging to keep up with the expenses associated with homeownership. Reverse mortgages offer one solution to this problem. A reverse mortgage is a type of loan that allows homeowners to convert a portion of their home equity into cash. However, there are certain rules and considerations that homeowners must keep in mind. Here are the basic rules of a reverse mortgage.
Primary Residence RequirementTo qualify for a reverse mortgage, your home must be your primary residence. This means that you reside there for the majority of the time. You cannot use a reverse mortgage to purchase a second home or investment property. The reason for this requirement is that reverse mortgages are meant to help homeowners who need to tap into their home equity for financial purposes.
Ownership and Mortgage BalanceYou must own your home in full or have an unsatisfactory mortgage balance to qualify for a reverse mortgage. If you have a mortgage balance, the amount you can borrow for a reverse mortgage will be reduced by the outstanding balance. However, if the reverse mortgage proceeds are enough to pay off the mortgage balance, you can use the remaining funds as you see fit. Some key points to keep in mind regarding ownership and mortgage balance include:
- If you have more than one property, you may be able to use a reverse mortgage on one of your properties as long as it is your primary residence.
- If you have a mortgage on your home, the reverse mortgage must be the first lien on the property.
- During the life of the reverse mortgage, you are still responsible for paying property taxes, home insurance, and any maintenance or repair costs.