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The things you need to know about a reverse mortgage

One kind of loan that you might be considering, especially as you age, is a reverse mortgage loan. This type of loan could be important for people such as seniors, who have equity in their homes.

These kinds of mortgages allow borrowers to take out their equity and to spend the money they receive in any way they want. They never have to make a mortgage payment to the reverse mortgage company, and they can continue to live in their homes for as long as they want.

The loan doesn't have to be paid back until the borrower sells the home, dies or moves out of the home for 12 months or longer. At the time that the person meets these terms, the fees, interest, principal balance and mortgage insurance is then due. This entire process could work out to be a windfall for homeowners as well as their heirs, because the heirs receive the right to buy the home for 95 percent of its appraised value.

How much money you receive through a reverse mortgage is based on how much the home is appraised for, interest rates, your age and the way the payout and fees are structured. You must be at least 62 years old to have a reverse mortgage if you are the borrower. Non-borrowing spouses are allowed to be any age.

Since the appraisal is the most important part of the determination of how much money you'll receive, it's important to talk to your own appraiser to get your own opinion. If the company is trying to appraise the home at a much lower rate, it's possible to have an attorney negotiate to try to work out a better deal.

Source: Bankrate, "5 factors that help determine the size of a reverse mortgage loan," Marcie Geffner, Nov. 01, 2016

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