| "Regular Mortgage" | "Reverse Mortgage" | ||
| Borrower needs income to qualify | Income is not considered, no income is needed | ||
| Property value, income, and credit score are the basis for the loan amount calculations |
Property value, age of borrower, how much borrower already owes on the property, location, type of property (house, mobile home, condo, etc.), condition of the property are the considerations for the loan amount calculations |
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| Up to 100% of the appraised value can be borrowed | Less that 90% of the appraised value of the property can be borrowed | ||
| All the funds are given to the borrower at once | The borrower can either get the funds: 1. all at once (% of value less than 90%); 2. in a set monthly amount; 3. as needed; 4. or any combination of the above |
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| There are closing costs | There are closing costs and additional Reverse Mortgage closing costs | ||
| No counseling except from loan officer | Free counseling is required by law - and paid for by the government. | ||
| Counselor is not paid from the mortgage | |||
| Loan officer gets paid when the loan closes | Loan officer gets paid when the loan closes | ||
| Borrower is personally liable for the debt | Borrower is not personally liable - bank will only use the property to recover the debt - borrower, heirs, estate not liable |
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| Repayment is required when property is sold or inherited | Repayment is required when property is sold or passed to heirs | ||
| Interest is charged and paid on the amount borrowed | Interest is charged on the amount borrowed | ||
| 300,000 @ 7% = $2000/monthly payment to bank (All numbers are rounded and for example only) |
Borrower receives $2000 each month from bank. Amount borrowed increases $2000 per month and interest is charged only on the total amount borrowed. Month 1 $2000 to borrower = $2000 +interest Month 2 $2000 to borrower = $4000 +interest Month 3 $2000 to borrower = $6000 +interest and so on and so on until the property is sold or passed to heirs. On a $300,000 property, the $2000 montly income to borrower could go on for around 11 years. |
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| Or (for the $300,000 property in the example) the lump sum of $270,000 (90% of the homes value) is paid to the borrower and the remaining $30,000 of the property's value is used to absorb the monthly increase of the amount borrowed plus the interest. No monthly payments are required. |
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| The funds must be used to purchase the property | The funds can be used for anything, because the borrower already owns the property. |