Key Terms to Know When Learning About Reverse Mortgage Loans *

If you are at or nearing the age of retirement, being financially stable is no doubt important to you. If you have equity in your home, a reverse mortgage loan may be a more strategic approach than relying solely upon social security for income. A reverse mortgage loan offers flexible ways to use your home equity to meet retirement goals. To understand a reverse mortgage loan, you must know how to interpret the language used with reverse mortgages. Here are some terms you need to know.

Types of Loans and What They Mean to You
There are three main types of home loans available.

Traditional loans – A traditional mortgage is a long-term loan issued by banks or credit unions to finance a home. You are required to pay monthly installments depending on the term of the loan and the interest rate at the time the loan was taken out. If you fail to make these installments, you can be at risk for foreclosure.

Reverse Mortgage Loans allow homeowners to borrow money using their home’s equity as the security of the loan. You do not make monthly mortgage payments like a traditional loan; however, you are required to pay property taxes and homeowners insurance and keep the home in good condition.

(HECM) Home Equity Conversion Mortgage is a mortgage loan that is insured by the Federal Housing Administration (FHA). With this program, your home remains in your name and you own it as long as you continue living in the home, pay the necessary taxes, insurance premiums, and maintain the property. You will have no monthly installments to pay and when the home is sold, you pay back the loan and accumulated interest out of the proceeds.

What is a Reverse Mortgage Calculator?
Another popular term you will see when researching reverse mortgage loans is a reverse mortgage calculator (RMC). An RMC is used to determine your eligibility and the amount you may qualify for. The different factors used in determining this is your age, the estimated value of your home, the balance on your current home loan (if applicable), and where the home is located.

Home Equity
Home Equity is the difference between your home’s current market value and the money that you owe on it. Determining how much equity you have in your home and ways to determine this amount can be confusing. Therefore, an RMC is especially important in determining this. Your equity is determined by things like home improvements that have been made to the home, the age of home, and where the home is located.

What is a Reverse Mortgage Line of Credit and Other Payment Options?
While researching reverse mortgage loans, you will see the term “Line of Credit”. The reverse mortgage line of credit is just like a credit card in this regard. It is money that is available to you at any time and can be an excellent source of funds.

The option to get your money via a line of credit is just one way of acquiring funds from your reverse mortgage loan. There are other ways of getting your money, which include:

One lump sum – You receive your money in a one lump sum payment at the time your loan closes.

Monthly Installments – If you like the idea of getting extra money every month, getting your money spread out as monthly payments may be a good option for you.

Combination Option – This option allows you to combine the options above and provide you with more freedom of how you get your proceeds. For example, you can choose to get a portion of your money in a lump sum payment and then put the rest of the money into a line of credit or as monthly payments.


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