Reverse Mortgage 101

Chances are, you have heard the term reverse mortgage, but do you really know what it means? A reverse mortgage is a specialty loan that is only available to homeowners who are 62 years or older which allows them to convert part of their home equity into cash. There are no restrictions on how that cash can be used, and the homeowner is not obligated to repay the loan or make monthly payment unless the home is vacated or sold.

Reverse mortgages may seem like the ideal situation for those who are living on Social Security or lost their 401K in the last recession. However, it is important to keep in mind that reverse mortgages have restrictions. When you take out a reverse mortgage, you are required to keep up with your property taxes and condo fees if you have any. You also have to have plenty of homeowners insurance coverage.

Just like the original loan you took out to buy your house, your lender will need some type of collateral to protect your home in case it is destroyed in a disaster such as a fire. Since the value of your home is generally tied to the value of the land it sits on, you will need enough home insurance to equal the appraised value of your house. You will most likely have to invest in a homeowners insurance policy that is equal to 100 percent replacement cost of your house. If you have any valuable assets, you will also need to add extra coverage to replace the items if they are damaged, stolen, or lost during a covered peril.

For all of your homeowners insurance needs to make sure that you have the protection that you and your house deserve, contact Michelle Lim Insurance Services Insurance in Alhambra, California.