With a reverse mortgage calculator you can find out how much money you can raise against your home in the form of lump sum equity. You have to be 62 years or older, for this type of mortgage which is aimed primarily at Americans who have retired and are likely to have equity in their homes.
Many people who have had their homes for a long period of time are likely to have paid either a large percentage of their mortgage off or may have paid the mortgage off completely. Also it is likely the value of their home has increased significantly since they purchased it so this is when the equity is established and provides the security the mortgage lenders require to make a loan.
The principle behind a reverse mortgage is that it gives you access to funds without having to sell your house and downsize or having to take out another loan against your property as there would then be new monthly payments to make. With a reverse mortgage there are no monthly repayments to make.
Mortgage lenders are obviously looking to extract a profit otherwise why would be offering the mortgage in the first place. In this case what happens is the capital value of the loan increases year on year as the interest you would have paid is added to the amount you borrowed up to the full value of your house in some cases. That is of course the worse case scenario but there will always be some cost involved when repaying the loan and the house is the security for that loan so the loan company get first dibs.
Repayment of the loan and any other associated charges are made either when the last remaining occupant of the house dies, if you sell your house and move, or in fact the house is no longer your primary residence (this is usually a requirement to secure a reverse mortgage in the first instance.
Sometime the loans can be secured via ‘public sector’ arrangements, maybe for a property repair or to pay taxes, this is a cheaper option than taking out a private reverse mortgage in terms of the charges and interest paid. The largest cash advances tend to come from HCEM (Home Equity Conversion Mortgages) which are federally insured but funded through the ‘private sector.’
There are a number of different costs involved with initially setting up the mortgage, these can be added to the loan amount, but you will end up paying interest on any capital added to the loan.