What is Reverse Mortgage?

1. What is Reverse Mortgage? If you are contemplating on whether you will have enough to live for by the time you retire, you might be seating right on the answer, to be precise, your house and the equity it holds. But is it really possible to tap to that wealth? The answer is yes. However, this wealth is only usable when you downsize and sell or borrow against the equity of your home. That right there is what is known as reverse mortgage. It is specifically designed for retirees. Definition of Reverse Mortgage In simple terms, reverse mortgage is a loan. Any retiree who owns property with a considerable equity can get a loan against their property equity and receive monthly payments, a line of credit or just a lump sum amount. Reverse mortgage is different from the normal mortgage in that it does not require a retiree to pay any amount. The total payable loan balance is due when the retiree moves permanently, dies or sells his property. Lenders like the Hamilton private lenders are required to clearly structure the entire transaction by federal regulations. This is to ensure that the loan amount does not exceed the property value and the home owner will not be responsible for paying the excess difference in case the loan balance is higher than the value of the property. How Reverse Mortgage Works Like I mentioned above, in reverse mortgage, the loan lender makes payment to the home owner instead of the homeowner paying the lender. That’s not all, the homeowner gets to choose which method of payment he prefers. The only charge on the owner’s side is interest payments for the proceeds he receives. Still the homeowner does not pay any amount upfront because these interests are rolled over to the loan balance. All this while, the homeowner retains the title deed. In the long run, the property owner’s debt becomes higher while the value of his home decreases.

2. Types of Reverse Mortgage Payments Reverse Mortgage payments are divided into three namely: 1. Monthly Payments If there is even one borrower still living in the property as the principle resident, the reverse mortgage loan provider will be making steady and equal monthly payments to the homeowner. 2. Lump Sum In this method, the homeowner gets his proceeds at one go when his loan closes. For fixed interest rates, this is the only option available. There are five other options but all of them have an adjustable interest rate. 3. Term Payment In this method, the borrower sets a specified time period where he will be receiving monthly equal payments throughout the specified period, say 20 years. Conclusion: The best reverse mortgage loan services have proven to come in handy especially for senior retired citizens who, their entire net value goes hand in hand with the equity of their property. Unfortunately, these loans can be very expensive, complex and in most cases a ripe harvest for scammers. Always make an informed decision before going for a reverse mortgage to avoid these pitfalls.