Reverse Mortgage
REVERSE MORTGAGE
Reverse has emerged to be a popular financing tool since it is now easily available. Also known as the lifetime mortgage, this is generally for the senior members of the community who have accumulated a reasonable home equity. This is a way by which older citizens are given financial security, a way to subsidize or augment their retirement income, a way to meet unexpected expenses such as medical and health care bills and a way by which cash needed for home improvements and other expenses are made available.
In a traditional mortgage, the borrower will have to pay the lender a prearranged amount at a set period of time. At the end of the term and when the is paid in full, the property is released by the lender. This is not so with reverse mortgage. In this case, the lender pays the homeowner a certain amount of money based on the equity of the home, the age of the borrower and the current interest rates.
The lien on the property is increased by the accrued interest and by the payments that the home owner receives each month. Now how will the lender recover his investment? The lender will be paid if the homeowner is no longer using the property as his residence and if he/she dies.
In a reverse mortgage, the borrower is not required to pay the loan. Most mortgages of this kind are not paid for a long time and others are not paid at all. The loan is not due as long as the borrower lives and is using the property as his/her home. The lender will have the chance to be paid if the property is sold due to the death of the borrower or if the borrower has transferred to a home for the aged and is no longer using the property as residence.
Minimum income and other credit requirement are not necessary
to qualify for this kind of mortgage. You only have to be a home owner, at least 62 year of age and must use the home as primary residence. The amount of the loan will depend on the age of the borrower, the current interest rates and the value of the home. Normally, the older the borrower gets, the higher the appraised value of the home and the lower the interest rate, the higher the amount of reverse mortgage.
Payout of a reverse may be lump sum- the borrower is provided with much needed cash to pay off a large debt or fixed monthly payments that will be made to the borrower as long as he lives in the home and as line of credit that the borrower may use at any given time until the amount of loan is exhausted.
A significant drawback of reverse is the high upfront fees that are typically financed by the loan itself-meaning the costs and fees are directly added to the principal. This would permit borrowers with no cash to get a reverse but the principal will be increased and consequently the fees will accrue interest.
The home is probably the most important investment. Knowing the facts of a reverse will help you decide if this kind of is right for you.
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