Reverse mortgages sound too good to be true, but it actually is a great way to enhance your life as you reach your senior years. In a previous blog, we wrote about how older Americans are in danger of losing their homes. This article is probably something you can look into to avoid being part of this statistic. To understand better, we need to look into the definition, eligibility and process of this type of loan.
Mortgage in reverse is simply just that, a mortgage arrangement with a reversed process. Conventional mortgage would have you pay off your loan for a house in a fixed time frame. As the homeowner, you would cut checks and send to the lending institution to pay for the principal and interest. It also could include payments to escrow which handles the taxes and insurance. After paying off the loan, you get to own the house without any lien on it.
A reverse mortgage is a type of loan you can take out on your home. But instead of making monthly payments to the loan, the lending institution is the one sending you the check. This is because you are taking out a loan using your equity, or the amount you already paid for the house, as collateral. The amount you will get for it will be sent to you via monthly checks. That is why it is mortgage in reverse, you are not the ones sending out the payments but the financing institution is the one cutting you a check.
Of course this is not for everyone. Reverse mortgages can only be utilized by senior citizens that are at the age of 62 and over. There are two more conditions to avail of this loan. The homeowner must have the house listed as their primary residence and be actually living in the house. The last is that fact that any existing mortgage on the house must be less than the amount they are taking out for the loan. The last one is particularly in place to safeguard the possibility of senior citizens accruing more payables than they are able to pay off. It is also a safety net for the lending institutions giving them assurance that they will be paid off.
Reverse mortgage can be used for a lot of reasons – investments, travel or big purchases. The amount that can be taken out usually differs from one state to another but a cap has been put at $625,000. The amount can be used to buy stocks for those that are investment savvy people. It could also be used to buy those tickets for a travel long overdue. It could also be used to finance a small business and the money will act as initial capital. There are a lot of uses for this type of loan.
Payment for reverse mortgage becomes due when one of the four scenarios occur – death of the borrower, unpaid taxes and insurance, sale of the house or inability to stay in the house for 12 months. When this happens, the heirs of the original borrower has a few options to exercise. They can simply turn over the home to the lender. This is usually for those that has their families and homes of their own. They can also put it up in the market and sell the house. The last is to refinance and make monthly payments to keep the house. The good thing is they have 12 months after the payment is due to make a decision and make it happen.
If you wish to know more about reverse mortgage, feel free to get in touch with the Guldi Group. We exist to help you find your dream home and educate you on the right way to do it. We can also help you by educating you on your different mortgage news and options.
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