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Reverse mortgages are becoming more readily available and popular as a financing
option, particularly in the United States. These mortgages are generally used by
older people who have accumulated a substantial amount of equity in their home.
Most lenders require the borrower to be at least 62 years of age. Reverse
mortgages are a good way for them to subsidize their retirement income.
The way a reverse mortgage works is by the lender making payments to you
based on the value of the equity in your home as opposed to you making payments
to a lender with a traditional mortgage. Taxes and interest are added to the
amount that needs repaid, decreasing the equity in the home. The lender gets
their money after the house is sold or when the owner dies.
Most reverse mortgages do not have to be repaid for a
long time and some not at all, as long as you continue to live in the property.
The amount you are loaned is based on your age, the value of your home and the
current interest rates.
Your loan is usually disbursed in one of the following ways:
* A lump sum that is given to you or used to pay off debt or a combination of
the two.
* Fixed monthly payments that will be made to you for a set period of time.
* Fixed monthly payments that will be made to you as long as you live in the
home. These payments will be smaller than the ones in the previous option.
* As a line of credit.
* As a combination of a credit line and one of the payment options.
Some potential drawbacks of reverse mortgages are:
* You can only use your equity once. If you use it to live on and have an
emergency later it will not be there.
* There can be substantial fees involved with reverse mortgages. There may be
upfront fees as high as $5000 dollars. It is wise to do some comparative
shopping when it comes to this type of financing.
* Your payment amount may not meet your needs. How much good will $100 a
month do you if it is going to cost you the equity in your home?
* Your ability to receive government pay outs such as SSI and Medicaid may be
affected.
* Make sure your lender is reputable. The names of reputable lenders can be
gotten from the Department of Housing Urban Development.
* Upon death, if repayment has not been made, your home will go to the
lender. This may not necessarily be a bad thing, but it is something to
consider.
These are a few of the facts about reverse mortgages.
These mortgages can be a big help if you need money later on in life, but they
also come at a price. Only you can decide, based on your situation, if that
price is worth paying.
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