A reverse mortgage is a loan against your home that you
don't have to repay as long as you live there. In a regular or so-called forward
mortgage (15 year, 30-year, adjustable rate, et cetera), your monthly loan
repayments make your debt go down over time until you've paid it all off.
Meanwhile, your equity is rising as you repay your mortgage and as your
property value appreciates.
Reverse mortgages usually cater to homeowners who are 62
years old and older.
With a reverse mortgage, conversely, the lender sends you
money and your debt grows larger and larger as you keep getting cash advances,
make no repayment and interest is added to the loan balance (the amount you
owe).
That's why reverse mortgages are called rising debt, falling equity
loans. As your debt (the amount you owe) grows larger, your equity (that is,
your home's value minus any debt against it) generally gets smaller.
Another way to think of Reverse Mortgage is as follows. In
order to turn your income into equity you use debt in a forward mortgage. But you
use debt to turn your equity into income in a reverse mortgage.
You are
reversing the deal you used to buy your home. Then, you had income and wanted
equity. Now, you have equity and want income. In both cases, you use debt to
turn what you have into what you want.
Reverse mortgages provide you with cash, which you can use
for other investments. Reverse mortgages gives you virtually unlimited funds
without having to move and even without repaying the loan every month by
turning the value of your home into cash.
There are several ways to give you the cash from reverse
mortgages. You can get cash from a reverse mortgage all at once or in a single
lump sum. With a reverse mortgage, you can also opt to receive a regular
monthly cash advance.
Good reverse mortgages merit your consideration if they fit
your circumstances. A good reverse mortgage allows you to cost-effectively tap
your home's equity and enhance your retirement income.
A good reverse mortgage
may be your salvation if you have bills to pay, want to buy some new carpeting,
need to paint your home, or simply feel like eating out and traveling more.
Besides, by means of creditline account, a reverse mortgage
can offer you cash. Whenever the need arises, this creditline account from a
reverse mortgage will let you get the amount of money you want.
And if none of
these methods suits you, reverse mortgage cash may be given to you using any
combination of the abovementioned methods.
The main thing whether or not you want your cash from a
reverse mortgage be paid to you in lump or in installment is that you do not
have to pay anything back until you die, sell your home, or permanently move.
While reverse mortgages have their advantages, they also
have disadvantages. As you know already, reverse mortgages do not require
monthly paybacks. This means that with reverse mortgages, you are actually pulling
out equity from your home and turning it into cash. For your debt or your home
equity for that matter, this does not augur well.
When buying a home, other mortgages require a person to make
a down payment. As years go on, they use their income to pay back the money
they borrowed in making the purchase. This decreases their debt and increases
the value of their home.
With a reverse mortgage, everything works in the reverse.
You have your home. You convert its value into cash. Then you take out that
cash every now and then, thereby increasing your debt and reducing your home
equity.
Of course, this is not always the case with reverse
mortgages. If your home value grows rapidly or you only one loan on your home,
there's every chance that your equity could increase over time.
Of course, reverse mortgages are not for everyone. In
addition, not everyone qualifies to take out a reverse mortgage. Specifically,
to be eligible for a reverse mortgage:
The reverse mortgage offers older citizens a way to benefit
from the equity in their home, because the reverse mortgage turns that equity
into a monthly income.
Quite frankly, unless you live with your parents, or you
intend to move into your parents home when your parents pass, you aren't going
to retain the home; statistics attest to the fact that the vast majority of
children sell their parents home, once their parents are no longer in
need.
You must own your home. As a rule, all of the owners must be
at least 62 years old. Your home generally must be your principal residence, which
means that you must live in it more than half the year.
- For
the federally insured Home Equity Conversion Mortgage (HECM), your home
must be a single-family property, a 2- to 4-unit building, or a federally
approved condominium or planned unit development (PUD).
For a Fannie
Mae Home Keeper mortgage, you must have a
single-family home or condominium. Reverse mortgage programs generally do
not lend on mobile homes or cooperative apartments.
- If you
have any debt against your home, you must either pay it off before getting
a reverse mortgage or, as most borrowers do, use an immediate cash advance
from the reverse mortgage to pay it off.
If you don't pay off the debt
beforehand or do not qualify for a large enough immediate cash advance to
do so, you cannot get a reverse mortgage.
In most other loans, a systematic check on your income and
assets is done in order to pre-qualify for the mortgage.
This is done as an
assurance to the lender that you will be able to afford the monthly payments
tied with a loan. Since reverse mortgages do not involve any monthly payments,
you not have to go through these tedious prequalification procedures.
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