Buying a home is a significant investment, and after you pay it off, it becomes even more valuable. At this point, homeowners can capitalize on the equity they have in their home by securing a reverse mortgage. Below is more information about this loan so that you can make the best decision.

How Do They Work?

Reverse mortgages allow eligible homeowners to borrow against the value of their homes. Despite its classification as a loan, you do not make payments on reverse mortgages until after the sale of the house or the death of the borrower. At that point, the entirety of the loan is due.

These loans are available to homeowners aged 62 and older who have a significant amount of equity in their homes, but lack liquid assets to pay for home repairs, medical costs, and other common expenses. When receiving funds, the homeowner can choose a lump sum payment, fixed monthly payments, or a line of credit. 

What Are the Different Types of Reverse Mortgages?

Generally, homeowners choose from one of three options when applying:

• Single-Purpose: Homeowners can only use this option for one specific purpose. The lender must approve the expense before they disperse the funds. 
• Home Equity Conversion: Conversely, you can use this type of funding any way that you see fit. The Department of Housing and Urban Development (HUD) insures these loans, and they are the most common. 
• Proprietary Reverse: Unlike home equity conversion, proprietary reverse mortgages do not have federal backing. They’re also associated with higher loan amounts, depending on the value of your home. 

What Should You Know Before Applying?

While beneficial, you should understand all aspects of this loan. For instance, if you receive a line of credit and use the money in a short period, you could face financial instability without other methods of income. If you’re married and die before your spouse, they must leave the home unless they can pay the loan without a home sale.

While complex, reverse mortgages are beneficial in the right circumstances. Fairway Independent Mortgage Corp. - The Sharon Thompson Team understands that homeowners in Foley, AL, need trusted guidance when making loan decisions. Mortgage consultant Sharon Thompson and the rest of her skilled staff are happy to discuss your needs to find the best loan option available. Visit them online to learn more about their services. If you’d like to schedule an appointment, call (251) 298-5304.