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The Reverse Mortgage Loan Explained

by Brandon Cornett

If you are a senior citizen over the age of 60, and you own a home, I'm willing to bet you've been hearing about reverse mortgage loans lately. But why is this lending option so popular among seniors lately, and how does it work anyway? Let's take a look.

What is a Reverse Mortgage Anyway?

It's a type of loan that is made against that value of your home. In this way, it's similar to a home equity loan. But the similarities end there. With a reverse mortgage, the borrower does not have to pay the loan back for as long as they live in the home. So in essence, it's a way for senior citizens to convert the value of their homes into cash, and without having to repay it right away.

This unique lending option is typically aimed at senior citizens who own their own homes. In fact, the HUD reverse mortgage program (one of the first of its kind) actually has a strict age requirement -- applicants must be at least 62 years old for this federally insured program.

As of this writing, the HUD program is one of the most popular. In addition to being 62 or older, applicants for a HUD reverse mortgage must either own the home outright or have a low mortgage balance that can be paid off at closing (with part of the proceeds from the loan).

How Much Can I Borrow?

Here again, the amount will differ from one lender to the next. But in general, the amount you can borrow on this type of mortgage will depend on several factors:

1. Your age
2. The current interest rates
3. The appraised value of your home

This means that people who are older, who have more valuable homes, and who borrow when rates are lower will qualify for a higher amount (generally speaking, of course).

When Do I Pay It Back?

First, keep in mind that the exact details of a reverse mortgage will vary from one lending institution to the next. In most cases, you do not have to pay anything back until (A) you die, (B) you sell the home, or (C) your move out of the home.

In other words, the loan will have to be paid back when the home is no longer your primary residence, for whatever reason. When one of these conditions has occurred, and the loan repayment is due, you (or your estate) will have to repay the amount borrowed plus any lending fees.

Increasingly Popular Among Senior Citizens

The number of reverse mortgages has been rising steadily over the last few years. One reason for this is that there's a larger pool of potential borrowers each year, because the number of seniors 62 and older is increasing (better medical treatment, better health, etc.). Another reason for the growing popularity has to do with good old-fashioned marketing. The lenders that offer these programs have been pretty active in their marketing efforts lately.

As a result of these and other factors, the number of seniors pursuing this lending option has increased significantly over the last few years. For example, from 2005 - 2006 there was a 56% increase in the number of reverse mortgages granted to senior citizens in the United States.

About the Author: Brandon Cornett publishes the Mortgage Refinance Blog and several other real estate websites. Visit the author online at

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