I will define a Reverse Mortgage in the following way: A Reverse Mortgage also known as equity release mortgage is a special type of loan available to homeowners who are over 62 years of age.
Using a real-life example, we can name social security benefits and retirement savings, which can hardly provide adequate income for many retired people and cover all of their needs. For this reason, some senior citizens opt to borrow from their homes through reverse mortgages, which enables them to use the accumulated equity from their homes as cash. So, what does it mean to receive the funds as the loan in reverse?
A reverse mortgage is a federally insured loan product, which lets homeowners who are 62 years of age and above borrow cash from their home. This form of credit is quite different from a regular mortgage where the borrower pays installments to the lender on the other hand a reverse mortgage is granted to the homeowner by the lender who then pays the homeowner. The loan is usually repaid once the homeowner dies, refinances or moves out of the property for an indefinite time. While this financial tool can help enhance the quality of life for retired individuals through generating supplemental income, it is critical to realize how this instrument works and possible pitfalls that come with it in case a reverse mortgage is considered.
Reverse Mortgage A reverse mortgage is a financing tool that helps elderly homeowners to partake in realizing their desired financial status or security by utilizing their home’s equity.
As for the reverse mortgage, it is also a kind of home loan enabling those borrowers who joined the age of 62 years and more to receive a portion of their home equity as cash. This loan is different from the normal loan where the borrower is expected to collapse part of the amount borrowed together with interest to the lender; instead, in a reverse mortgage, the borrower is paid by the lender. This is a priceless financial investment tool that may help the seniors to make up the additional sources of income after they are through with working, emergencies, or to make home improvements.
The reverse mortgage programs can be categorized in various ways but in essence there are only few common types in that the most popular is the Home Equity Conversion Mortgage (HECM) which is backed by the Federal Housing Administration (FHA). To become eligible for the reverse mortgage, a homeowner is required to own his or her home and be either free from any mortgage or have a small remaining balance that can easily be paid off with the money from reverse mortgage. Further, as is the case with Section 205 and 207 properties, the homeowners must reside in the home, keep the property in good order and pay property taxes and homeowners’ insurance.
A reverse mortgage has several forms, and when a homeowner decides to take one, he or she has the following choices with regard to payment plans. The options include taking a lump sum cash payoff, receiving a monthly cash amount, being given a credit line that can be used to make payments wherever, anytime, or some mix between the above. The possible of funds that the owner can borrow within a reverse mortgage depends on factors such as; the age of the owner, the current market value of the home and the going rates of interest.
This means that through a reverse mortgage, homeowners can access the value of their homes but does not mandate them to sell their homes or go for a regular loan to get this money. It can offer seniors the ability to have some financial cushion as well as additional income in which they may have desired for their retirement years or emergency funds should anything occur in the future. Moreover, important to note is the fact that the funds a borrower gains through the reverse mortgage loan are usually tax-free, which only adds to the appeal of this kind of credit.
In as much as a reverse mortgage is a cash facility to the elderly, one should understand that the cash is in form of a loan and has to be paid back, wean either sell the home, emptied from the home or pass on. It has to be paid in full at the time for the respective residual loan balance, interest and other fees accrued on the outstanding. This means that when the actual selling price exceeds the amount owed on the loan, the homeowner or their beneficiaries will get the remaining amount of equity.
I personally believe that a reverse mortgage can indeed be useful in particular for seniors in need of additional income, but at the same time, one has to envision all of the advantages and disadvantages of the given type of loan before applying for it. For instance, while acquiring a reverse mortgage, the participating homeowners may lose a good chunk of the equity in their home and this may affect their ability to pass on an inheritance to their descendants. Further, it is also crucial to point out that the fees and interest rates that are applied to reverse mortgage than those of standard mortgage may sometimes be significantly high, so it is important and wise to read the fine print before proceeding with the loan.
Overall, reverse mortgage is one of the best options that is appropriate to consider especially when the senior person is in need of cash to supplement his/her social security check, medical fees, and other necessities. The information provided in this instance about reverse mortgages will help homeowners understand how the loan works and better evaluate its advantages and disadvantages for playing the role of the final decision-maker.
Therefore, a reverse mortgage is a product, which enables the aged homeowners who are of the age of sixty-two years and above to use the cash value of their homes to get cash without necessarily selling the property, or, having to pay back the balance within a certain period. Although reverse mortgages can be a source of income for the retired citizens, it is essential to think over all the negative consequences and addends that may occur. It is wise that any person interested in a reverse mortgage should first seek the services of a financial planner or housing counselor. Thus, it is only logical for a homeowner to learn how reverse mortgages function, thereby consider the advantages and disadvantages, and consequently make an informed decision based on one’s financial plans and requirements during the retirement stage.
