Reverse Mortgage

Reverse Mortgage

What is a Reverse Mortgage?
Reverse mortgages enable house owners to access the money they have built up as equity in their houses. Unlike an ordinary mortgage, which involves payments by the borrower to the lender, a reverse mortgage involves payments by the lender to the borrower. It is an arrangement whereby house owners get cash (usually in the form of monthly payments or a lump sum) in return for a mortgage on their house. This mortgage is used as security against the loan. This is a strategy is basically used by retired house owners who need to supplement their income. A reverse mortgage is one way of tapping into the value of a house.
A borrower can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the house, as a line of credit, or a combination of these. The most popular option – chosen by more than 60 percent of borrowers – is the line of credit, which allows you to draw on the loan proceeds at any time

How Reverse Mortgages Work
A reverse mortgage is a loan: where the lender pays the borrower n a lump sum, a monthly advance, a line of credit, or a combination of all three. The borrower continues to live in his house. To qualify for a reverse mortgage the borrower must own the hoe. The amount he or she eligible to borrow generally is based on borrower’s age, the equity in the house, and the interest rate the lender is charging. Funds received from a reverse mortgage may be used for any purpose.
With a reverse mortgage, the borrower retains title to his house. The borrower is responsible for maintaining the house and paying all real estate taxes. Depending on the plan selected, the reverse mortgage becomes due with interest when the borrower moves, sell the house, reach the end of a pre-selected loan period, or die. When the borrower dies, the lender does not take title to his house, but his heirs must pay off the loan. Usually, selling the house or refinancing the property repays the debt.

Facts to Consider about Reverse Mortgages

Reverse mortgages are rising-debt loans. The interest is added to the principal loan balance each month, because it is not paid on a current basis. The amount borrower owes increases over time as the interest compounds. Some reverse mortgages have fixed rate interest; others have adjustable rates that can change over the lifetime of the loan.

Reverse mortgages use up some or all the equity in borrower’s house, leaving fewer assets for him and his heirs.

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