The Nature of a Reverse Mortgage
There are significant differences between a reverse mortgage and a home equity loan or line of credit. The first major difference is payment types. To qualify for a home equity loan or home equity line of credit (HELOC), you must pass income qualifications in order to prove your ability to make the loan payments. With a reverse mortgage, there are no income qualifications, as the nature of the loans involve payments made to the homeowner as monthly payments or as a lump sum payment. There are two payment options for monthly payments, which include tenure or term payments.
A tenure payment means that the agreed monthly payment is made until the homeowner dies or leaves the home, no matter how long they live. A term payment is a monthly payment that will be made for a specified number of months. Interest payments accrued, added to the amount of the lien on the home, and then the interest payments due the homeowner – depending on the agreed rate – are accrued, as in the case of an interest bearing account in which the funds reside. Reverse mortgage loans do not have a fixed term as a regular mortgage does. All reverse mortgages are back by the Housing and Urban Development department (HUD), with the exception of jumbo reverse mortgages. There are other aspects to reverse mortgages, so be sure to lean about them before signing for one.