How to use reverse mortgage to your benefit?
A reverse mortgage is a financial instrument made available to individuals who haveattained the age of 62 years or older to use the cash equity built up over the years in order to make mortgage payments. In a standard mortgage, the borrower makes a monthly payment and generates equity whereas in a reverse mortgage the monthly fee is paid from the equity itself.
How does a reverse mortgage work?
A reverse mortgage pays off your current loan (if any) and if there is additional equity that amount can be accessed tax-free. If you have paid off on your home loan, you can use a reverse mortgage to access the equity that you have built over the years. How you will receive additional income from your reverse mortgage is your choice. You can choose among the following options:
Line of credit
A lump sum amount
A combination of any of the above mentioned preferences
When you are a reverse mortgage borrower you can still have your right on the propertys title and will continue to own your house. This means you will still be liable for property taxes, insurance and repair works. If you no longer occupy the house, you will have to make a repayment.
Basic features of reverse mortgage:
Ownership: Even with reverse mortgage you have ownership of your home just like you did with a standard mortgage. Property taxes, repairs, insurance are still your responsibilities and when the loan is over, the cash advances must be paid out.
Sponsor fees: The money you receive from your reverse mortgage to pay off any other dues that are charged on the loan. The costs that are added to your loan and the interests accrued must be paid back by you when the loan gets over.
Mortgage amount: The kind of reverse mortgage plan you have selected determines the amount of money you can get from it. It might be convenient to use an online mortgage calculator to find out how much to buy. However, the amount you get generally depends on factors like your age and the value of your home. The older you are the more cash value you may get. Again if your home is an expensive one, you can get greater cash.
Limit of debt: The debt you owe can be calculated by the loan advances you receive and the interests added to it. When you pay back the loan, if this amount is less than the value of your home, you can keep the balance amount. But if it equals the value of your home, then you have a limitation on your debt, which then equals the value of your home. Technically, you cannot owe more than what your home is worth at the time of repayment.
Repayment: Reverse mortgages can be paid if the last borrower sells of the house, does not occupy it anymore or dies. You may also have to make payments if you have failed to pay property taxes or any special assessments. You may also have to repay if you do not repair or fail to maintain your home or fail to insure your home.
Cancellation: If you wish to cancel a reverse mortgage, you can do it and you will still have 3 days to reconsider your decision. Cancellation must be done in writing in the form provided by the lender. You could send it by fax or as a telegram. Cancellations cannot be done over the phone.
How to use reverse mortgage to your benefit?By: Samantha TaylorAbout the AuthorSamantha Taylor is a contributing Financial Writer, Moderator and Community Mentor of MortgageFit. She has been an active participant in the forums wherein she offers mortgage advice and suggestions to people in loan problems. If you have a query on "how much house can I afford" related issues, you can simply discuss it with her in the Mortgage Forum.(ArticlesBase SC #1719602)