How Reverse Mortgages Work
Unlike a forward mortgage there is no monthly payments and if the borrower has an
usual mortgage left, he must pay it away with the reverse mortgage loan, because he can have only one mortgage at a time. That is how reverse mortgages work.
When the amount borrowed will not be paid back on a monthly basis, the amount grows over time and the share of the own equity will decrease. On the other hand the home price will grow in average every year, which will bring more capital, when the loan costs will be paid back.
1. The Borrowers.
How reverse mortgages work?. These loans are meant to help senior citizens by bringing them more disposable money by turning a part of their home equities into cash money. The borrowers, maximum three are accepted, must be at least 62 year old and own a home, which they use as their primary residence.
The maximum loan sum is $ 625.000 but it is tied on three factors, on the age of the borrower, on the appraised value of the home and on the level of the interest rates. Generally speaking, the older the borrower, the higher the appraised value and the lower of the interest rates, the more will the borrower get.
2. The Eligible Home Types.
These are the accepted home types: the single family one unit dwellings, 2-4 unit owner occupied dwellings, some condominiums and planned unit developments and some manufactured homes. Only in some cases the mobile homes and the cooperatives are eligible.
3. The Loan Due Time.
How reverse mortgages work concerning the back payment time? As said nothing will be paid back on the monthly basis, because the target is to arrange more disposable money to the seniors.
The capital and the costs will be paid back, when the last borrower will move away, sell the house or die. Then the home will be sold and all the loan costs paid away from the selling price. A borrower can never owe more than the value of the home.
4. The Counseling System.
This system is very useful to the seniors. The Federal Government has built a nationwide expert chain to guide the seniors. The guidance is compulsory. A senior can benefit from it, if he has thought in advance the topics carefully. The counselor can guide about the various financing types and about the trustworthy lending companies.
by: Juhani Tontti
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