The amount of money that can be made available to a borrower is calculated according to the youngest borrower's age, the appraised value of the home and the prevailing interest rate. In some cases, Federal Housing Administration lending limits may put a cap on the loan amount.
Borrowers who have an existing mortgage on their house can still get a reverse mortgage, but the old mortgage will have to be paid off before the borrowers get anything out of the deal. For example, if a house qualifies for a $200,000 reverse mortgage but the homeowners still owe $150,000 on their original home loan, the old mortgage will be paid off with reverse mortgage funds, leaving only $50,000 for the borrowers.
Money from a reverse mortgage can be paid in a variety of ways. Most borrowers take their payments in the form of a repayment-free line of credit, which lets them draw money from their approved loan amount whenever they need it.
Funds can also be disbursed by a method called "tenure," which provides equal monthly payments as long as at least one borrower continues to occupy the house; by "term," which provides equal monthly payments for a fixed period of time; by "modified tenure," which provides a combination of a line of credit with monthly payments as long as a borrower is in the home; or "modified term," which provides a combination of a line of credit with fixed monthly payments over a set period of time.
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