Are you a senior citizen and in need of lump sum cash? In such a situation, you can cash out your home equity by taking out a reverse mortgage loan. It is a type of home loan that provides you with either a lump sum amount or a steady flow of tax-free income. It is also sometimes referred to as a conversion mortgage.

How it differs from a conventional mortgage

The difference between a reverse mortgage and a conventional mortgage is actually the way you pay back the loan. In a traditional/conventional mortgage, you need to repay the home loan with the help of a monthly payment; whereas, in a reverse mortgage, you don’t have to pay any installments as long as you’re staying in the property.

The loan is paid back only when the loan term ends or when the last surviving borrower dies, sells the home or moves out of the property. Even if the borrower dies, the heirs can continue staying in the property by repaying the loan amount.

How to qualify for a reverse mortgage

You need to satisfy certain factors in order to qualify for a reverse mortgage. The eligibility criteria are given below.

• The borrower/borrowers need to be at least 62 years of age.
• You should own a property in order to take out a conversion mortgage.
• You should have enough equity in your home.
• The property (against which you’re obtaining the loan) should be your primary residence.

You can get the loan even if you have past debts on it. However, the balance needs to be paid back with the reverse mortgage loan proceeds at the time of closing.

Costs involved in a reverse mortgage

The costs associated with a reverse/conversion mortgage are usually higher than that of a conventional mortgage. A conversion mortgage cost comprises of the following.

• Application fee: You need to pay an origination fee for the required paperwork and the loan processing costs.
• Insurance premium: When you pay the insurance premium, it guarantees that you’ll receive the loan amount as promised to you and you won’t have to repay the borrowed amount as long as you’re staying in the property.
• Closing costs: You need to pay third party fees at the time of closing. It includes the attorney fee, appraisal fee, title insurance, etc.

Beware of reverse mortgage scams while taking out the home loan. Therefore, before obtaining the loan, you can attend a counseling session with a trained reverse mortgage counselor. This will help you to know about the home loan in details. Most importantly, do not ever sign a document without reading it thoroughly and take help of an attorney if required.