An American senior can qualify for the reverse loan if he or she owns a home, where he lives permanently and where he has enough equity. If he has an usual mortgage left, it is not a problem. And he must be at least 62 years old. Thats all. When he wonder how do reverse mortgages work, the answer is, that he or she will take a loan against the equity of his home. The equity will be the only collateral for the loan.
1. To Whom The Reverse Loan Is Targeted?
When the Reagan government decided about the reverse loan it had one target. To offer better life circumstances to the American seniors, who are cash poor but equity rich. That meant seniors, who need more disposable cash. The only source of the money is the homes, which they own.
So they planned a loan, which used the equity of the home, i.e. seniors who wanted to go on living in their old homes could continue that but who had also an opportunity, if they wanted, to eat the equity, which they had saved during many years.
2. The Payments To The Senior Are Tax Free.
This is quite clear, because the loan comes from the equity, which a senior has paid using his salary. And he has paid taxes from his salary already once. However, it is wise to check this issue from the state, where a senior lives, because in some states the lump sums are taxable. The monthly payments, which are used during the same month are usually tax free.
3. A Senior Can Dictate, How The Lender Will Pay To Him.
This is nice. A borrower, i.e. a senior can order a bank, how it will pay to him. The alternatives are the lump sum, the monthly payments, the credit line or the combination of these. Of course the needs of the senior will order the payment way. Usually these loans are used for the serious purposes, like for the increased medical bills, house repair etc., but nobody will ask how the loan will be used.
4. Maximum Three Seniors Can Become The Borrowers.
The couple or maximum three borrowers can become the borrowers, but in this case all must qualify. This means, that they all must live in the home permanently and be the official owners of the property. It is not a must, that they are relatives. The loan terms will be calculated along the age of the youngest borrower.
5. The Loan Will Be Paid Back, When The Last Borrower Will Sell The Home, Move Away Or Pass Away.
As long as even one borrower will live in the home, the running time just goes on. But when the last borrower will die, move away or sells the home, the home will be sold and the selling price will be used to pay away the loan capital, interests and the costs. The obligatory mortgage insurance will cover the costs, which a home selling price cannot do.
The home equity is honestly the only collateral for the home. In no case a borrower has to use his other assets to pay for the reverse loan. Nor has the heirs to pay it. This is why the lender will not ask the income statement or the credit score, when a senior will apply for the reverse loan.
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