| Reverse Mortgage 101 for Seniors |
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| Written by David Delaney |
| Saturday, 11 October 2008 19:00 |
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For seniors who are in need of extra cash and a source of income to supplement their pension and retirement fund, there is one type of mortgage out there that could prove appealing – the Reverse Mortgage. Reverse mortgage or reverse equity mortgages) is a type of home loan that provides you with tax-free income either in installments or lump sum. What’s the difference of a reverse mortgage to a traditional mortgage you ask? Well, when paying a traditional mortgage, you make payments on a monthly basis, reducing your debt and build up equity in your home. A reverse mortgages is the exact opposite, you get money, but lost equity on your home? Sounds fishy? Read on! How Does A Reverse Mortgage Work? Reverse mortgages flip the way you do a traditional mortgage. In a reverse mortgage, you start of with ownership of your home (either partial or full ownership). You receive a pre-set amount (which you decide on) or a lump sum of cash for a particular amount of equity on your home. With a reverse mortgage, your debt accumulates, and your equity on the house decreases. However, as part of the deal reverse mortgages allow you to stay in the home until you are living there or until you or your heirs decide to sell.
Some may think that is a bad idea. Why would you sell your own home while you are still living in it? Here is a scenario. Lets say for example, your children are already successful, they own their own homes, or are professionals who make a good living. They no longer need your support, and what’s more, they even send you money from time to time. Now lets face it, every one gets old, and you only have a finite amount of time to enjoy your retirement. Since the kids are set, why not get a head start on reaping the benefits of selling your home? If you sell your home, you’ve no place to live or may need to rent. In a reverse mortgage, the bank gets ownership (or partial ownership) of your home and advances you the money. You can use this money to keep up a lifestyle you are used to or to fund things you may not have the cash for right now. In a reverse mortgage, banks will not collect on the debt up until you are still living and maintaining the home. How Much Can I Get? The maximum loan amount differs in ranges from state to state or country to country. The loan amount that you may qualify for depends upon the following: • Your age • The appraised value of your home • The equity built up in your home • What loan program you choose How Do I Qualify? Qualifying for a reverse mortgage is easy, as unlike other loan options, there is no minimum income or credit requirement. To make things easier, you need to find out if there are unpaid debts on your home, and pay them off if possible. Eligibility may also depend on the amount of equity you’ve built up in you home. Some institutions require a certain minimum equity before approving a reverse mortgage. Like other debt vehicles, reverse mortgages do have cons attached to it. Carefully consider your options and make sure it is the right mortgage for you. One thing is for certain though, reverse mortgage, - done properly - is something worth exploring. |
