If you are a senior citizen living in Greater Boston, who needs an additional source of income (other than your pension or retirement fund) a reverse mortgage loan is a good option. Reverse mortgages are loans which provide you with cash depending on your home equity. The money you get can be used at your discretion for a variety of purposes without having to pay any income tax on it (NOTE: Tax must be paid if the cash remains in your account for more than a year).
Your home equity is the difference between the market rate of the home and the amount which is owned in the form of liabilities i.e. mortgage loan balance. If you are still repaying your mortgage loan, the equity of the house will usually increase (if slightly) every single time you make a payment on your mortgage loan (equal to the amount of the payment going toward principal on the loan).
What is a Reverse Mortgage Loan?
A reverse mortgage loan is a special type of home equity loan wherein you can convert the equity present in your home into cash – i.e. you will be using your home equity as collateral for the money. This is safe, because the value of these loans will never exceed the equity present (so you will not have to worry about debt). Additionally, your application will usually never be rejected (rejection occurs only if you do not meet the basic criteria). But reverse mortgages are available only to senior citizens i.e. people who are a minimum of 62 years of age.
Unlike other loans, where interest along with a principle sum must be paid regularly, in reverse mortgage loans the payment is undivided. If the house becomes no longer a principle residence, or when the necessary obligations of the loan are not met, the full amount may become due. It is still required to make regular payments for the real estate tax and insurance premiums for flood or hazards.
Qualification Required for Reverse Mortgage Loans
- The home must be your primary or principle residence.
- You (the borrower) must be 62 or older.
- The home must be owned by you completely, or the mortgage balance which you still have to pay should be low.
Cash limit on the Reverse Mortgage
The amount of money which you can borrow is calculated by the following factors:
- Appraised value of the house.
- Outstanding loans on the property.
- Interest rate.
- Age of the borrower (the higher the age, the more the cash available).
- Method used to gain access to the cash.
While the exact amount varies according to the value of the home (largely affected by location in Greater Boston), the maximum amount which a person can borrow is $625,000.00. The amount which you can borrow is also always less than the home equity available.
Reverse mortgages offer a viable and relatively safe option to senior citizens who need immediate cash for whatsoever reason, whether it is to supplement their income or to pay for medical expenses etc.