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A special home loan product that allows a homeowner aged 62 or older the ability to access the equity that has accumulated in their home. The home itself will be the source of repayment. The loan is underwritten based on the value of the collateral (home) and the life expectancy of the borrower. The loan must be repaid when you die, sell your home, or no longer live there as your principal residence. (Also called home equity conversion mortgages or reverse-annuity mortgages).
A reverse mortgage is a loan available to a homeowner 62 or older who may be eligible to borrow against the equity in his or her home.
Generally with a reverse mortgage, you receive money from a lender while you stay in your home. You don't have to pay the money back for as long as you live there and keep the property in good repair, but the loan must be repaid when you die, sell your home, or move to a different primary residence.
The amount you can borrow depends on your age, your home's value, your equity in it, and current interest rates. You can access the money as a lump sum, a line of credit, or a combination of these methods.
All reverse mortgages require closing costs, much like a regular mortgage, and they can charge fixed or variable interest rates. The fees can make a reverse mortgage an expensive way to borrow.
More than 90% of reverse mortgages, officially known as Home Equity Conversion Mortgages (HECMs), are insured by the US government's Federal Housing Administration (FHA). The FHA caps the size of reverse mortgages depending on the county in which your home is located and guarantees that you will receive the full amount of your loan.
Private alternatives to HECMs, called proprietary reverse mortgages, often offer higher limits. These loans may have higher costs, however.
- Browse Related Terms: Buy Down, Conventional fixed-rate mortgage, Cooling-off period, Department of Veterans Affairs (VA) mortgage, Discount point, Electronic bill presentment, Federal Housing Administration (FHA), Federal Housing Administration Mortgage, Home Equity Loan (HEL), mortgage-backed securities, Overages, Points, Points (also called discount points), Private Mortgage Insurance (PMI), Redlining, Reverse mortgage
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