What Makes Reverse Mortgage An Attractive Product
A Brief Introduction to Refinancing
If you are thinking of retirement, you need to make sure that you provide for a steady source of cash that can cover your living as well as medical expenses. A steady source of income is also important if you need to pay off your existing debts. If you are at least 62 years or older and have at least 50% equity in your home a
reverse mortgage can be a good option for your retirement.
A
reverse mortgage is exactly what the title states, the reverse of a standard mortgage. With a standard mortgage, the borrower makes monthly payments to the lender in order to pay back the loan that the lender originally lent to the borrower for the purchase or refinance of the house. This payment includes interest that the lender charges the borrower for the loan. In a reverse mortgage, on the other hand, the lender makes monthly payments to the borrower. However, in both a standard and reverse mortgage, the lender secures its loan amount by using the house as collateral.
A reverse mortgage is a home loan that lets an elderly homeowner convert a portion of the equity in his or her home into a tax-free income. Reverse mortgages are a type of Home Equity Conversion (HEC) wherein the equity built up over years of home mortgage payments can be paid to the homeowner. In a HEC, the home is either mortgaged or sold to a financial institution or other buyer in exchange for a regular cash payment or line of credit.
What makes this type of loan attractive is the fact that neither income nor credit history is considered by lenders in determining who qualifies. There are a few factors that determine how much money a borrower will receive from a reverse mortgage, such as the value of the home, borrowers age, current interest rates and any lending limits that may be standard Bottom of Form 1for your geographic area. In general, the older the borrower and the more valuable the home, the larger the available loan amount is. You can choose how you want to receive your payments, either as a lump sum, monthly payments or as a line of credit. The best thing is that the proceeds from the reverse mortgage can be used for anything, completely at the discretion of the borrower, though most borrowers use the funds for home repairs or modifications, health care expenses or to settle other debts.
It is advisable to remember that if you are a borrower with an existing mortgage, that mortgage will need to be paid off completely, so that the new reverse mortgage will be the only lien on the house. If the proceeds from the reverse mortgage are not sufficient to pay off the existing mortgage, then you would need to access your savings or other sources to pay off the rest of existing mortgage amount. In this case, you wont have access to any additional funds from the reverse mortgage. But it is generally observed that usually there is a small or no mortgage on the home and then the borrower is able to access nearly the full amount of the reverse mortgage to use at his or her discretion.
There are actually many options to consider and your lender should be able to provide you with all the necessary
reverse mortgage tips. But before you consider
reverse mortgage for seniors, it's important for you to understand what your specific needs are and how you plan to use the proceeds.
by: Ask Bill
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