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Reverse mortgages, a modality that allows you to get some extra income from your own home.

By Sana

Are you retired and finding it hard to make ends meet? Then you need to pay close attention, because in today's post we are going to talk about reverse mortgages, a modality that allows you to get some extra income from your own home.

What does a reverse mortgage consist of?

A reverse mortgage is a loan on a piece of property that you own which can be requested beginning at the age of 65. In short, the bank will give you a monthly amount and let you stay in the house. Subsequently, your heirs will be able to decide whether to return the money received to recover the house or to collect the outstanding amount of the mortgage.

ALSO READ: Factors to Consider When Applying for a Car Loan

The rules of reverse mortgages differ across banks and other financial providers. You will want to consider checking a site like to get more insights in the basics of different reverse mortgages.

mortgage Heirs decide whether to return the money received to recover the house or to collect the outstanding amount of the mortgage. Photo by Precondo CA on Unsplash

Who can apply for a reverse mortgage?

As we have mentioned, this modality is reserved for homeowners over 65 years of age, although sometimes people who are in a situation of severe dependency can apply for it before they reach this age. In addition, it is necessary to be the owner of a home and it is best to have the existing mortgage paid off. However, it is possible to get a reverse mortgage if you still have a mortgage on your property.

What happens if the property is still mortgaged? In this case, the bank will provide you with the money to pay off your previous debt, which will be deducted from the total amount of the loan.

Both the habitual residence and the second residence are valid, but the operation is more profitable with the first one, since we save with certain tax write offs. However, it is the entities themselves that establish the conditions, so some reverse mortgages are only available from the age of 70 or may contain additional requirements.

senior citizens eligible for reverse mortgage Homeowners over 65 years of age, although sometimes people who are in a situation of severe dependency can apply for it before they reach this age. Photo by Joe Hepburn on Unsplash

How much money will I be able to receive?

There are many different types, some of which allow you to receive the entire loan in a single payment depending on the bank's appraisal. But the most common is that the money arrives in the form of monthly payments, which are based on the value of the property and your age. For example, if you take out a reverse mortgage at the age of 70 you will receive more than if you do it at 65, in order to compensate for the 5 years difference.

What happens when the mortgage runs out?

This depends to a large extent on the type of mortgage you have taken out. Basic reverse mortgages estimate the value of your home and provide you with a monthly amount for a set period of time. When the term is over, you can continue to live in your home, but you will no longer receive any money.

To solve this problem, almost all banks offer annuity insurance, a formula that allows us to continue receiving money even if we have exceeded the time stipulated for the operation. Although you have to be very careful, as the cost is usually quite high.

Advantages and considerations

The great advantage of reverse mortgages is that we can obtain income from our home without paying taxes or having to rent or sell it. It also allows you to recover the property! If you have made calculations and with your pension you will be very tight, it is a very recommendable option that you should take into account.

Reverse mortgages are often very helpful for many seniors. Unfortunately, there are some complicating factors that have to be taken into consideration as well. For one thing, the monthly payments are not updated, so your rent will lose value over time due to inflation. Also, we again have to mention the life annuity insurance, which can represent up to a third of the total and the entities usually require it in a single payment at the beginning of the operation.

Finally, you have to make sure that your heirs understand that you have a reverse mortgage and what it means for them. They will need to know that they will have to pay it back to get their share of the estate. This can lead to a lot of resentment if you don't tell them before you pass away and they were planning on taking the home after you passed away.

keywords: reverse mortgage, senior citizens, homeowners, loan, mortgage.


Photo by Tingey Injury Law Firm on Unsplash

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