What are Reverse Mortgages and how they work?
Reverse mortgages are a special kind of mortgage in the UAE only available for customers who are 62 years old and above. When homeowners of the aforementioned ages have only small amounts of money left to repay on their mortgages, or have finished making payments towards their mortgage, can apply for a reverse mortgage. In this kind of mortgage, banks lend money against the equity in a homeowner’s property. The payments can be made either on a monthly basis or in a lump sum, or over occasional periods of time as a line of credit.
The maximum amount of money you can borrow depends upon three factors viz. your age, the equity in your home and the rate of interest at closing time of the loan. A Maximum Claim Amount is used in the formula to calculate a reverse mortgage, meaning that the money you could potentially receive is calculated using factors like your age and the property’s appraised value. A consultation with an FHA-approved counsellor and your lender will help you better understand your own distinctive formula.
The most amount of money that a customer can receive from a reverse mortgage depends on their age, the home’s appraised value and the rate of interest at closing time. For instance, a 68-year-old can borrow almost 63% of the appraised value of the home, a 78-year-old can borrow almost 73% of the appraised value of the home and an 88-year-old can borrow almost 83% of the appraised value of the home depending on the FHA loan limit.
Options to receive money
Line of credit: Withdrawals can be made at the discretion of the customer and the amount chosen can be as high as required but not exceeding the maximum principal limit.
Tenure Plan: If the home is occupied by the owner as their principal residence, they are eligible for fixed monthly payments.
Lump Sum: The customer has the freedom to take the whole loan or a part of it at closing time.
Combination: Customers can choose to combine the tenure or lump sum with the line of credit provided they are within the specified limits.
Eligibility Criteria for Reverse Mortgages
Reverse mortgages usually have no particular income or asset limitations. Even the value of homes that qualify for a reverse mortgage has no bearing on the customer’s ability to avail one.
Frequently Asked Questions - FAQs
- Does the loan have any restrictions with regards to usage?
- When does the loan have to be repaid?
The loan has no restrictions and can be used to pay property taxes, medical bills and home improvement or even for lifestyle changes.
Customers will not be due any payments when they are no longer in a position to own and occupy their home as their principal residence. In such as case, the money borrowed by the customer will have to be paid along with the interest as well as fees. Usually, homes are sold by borrowers to repay the loan.