What is a Reverse Mortgage?
Posted: Tuesday, November 17, 2009
by Terry Mitchell
http://commenterry.blogs.com
A reverse mortgage loan is a federally insured private loan that was created specifically to enable senior citizens (over the age of 62) to translate a portion of their home equity into cash. They therefore provide people with cash in advance against the value of their owned property. This can be very useful to senior citizens to supplement their income if they are struggling to meet their living expenses.
In order to qualify for a reverse mortgage, the individual must be 62 years and older and either own their own house or have a very low mortgage remaining on their home. Reverse mortgages were designed to help those people who have assets (their home) but do not have a sufficient or any income at all. This being said, individuals would not require any income in order to qualify for this type of loan. The amount of the loan depends on the individual's age and the equity they have in their home.
Generally the more equity they have and the older they are, the lower their interest rate will be and the more money they will be able to borrow. The money obtained from a reverse mortgage can be paid out in a single lump sum, a regular monthly cash advance, as a credit line account, or as a combination of these payment methods.
The Benefits of Using a Reverse Mortgage
The monetary benefits of reverse mortgages are pretty clear-cut. The homeowners can benefit from additional retirement income while still being able to own their house and pay for all their necessary bills and expenses. They also do not have to deal with the hassles of an extra monthly payment and the risk of being forced to vacate their home if they don't meet their repayments.
The Disadvantages of a Reverse Mortgage
A major disadvantage of a reverse mortgage is that seniors could spend this money irresponsibly. These mortgages were not designed to help pay for extravagant home improvements or holidays but rather to supplement their income in order to support themselves. If the money is spent frivolously, individuals could very well end up dissolving their home's equity on nonessential things.
One must also be aware that the upfront costs of this loan are high and that it is only beneficial if the individual is certain that they will stay in their home for at least 5 years. If they do not stay in the home for that period of time the benefits they receive will be close to none.
Although these reverse mortgages can provide some financial security to senior citizens, it is not something that should be applied for without serious consideration and investigation. Once all the pros and cons have been carefully considered, individuals will be able to make an informed decision that will be in their best interests.
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Top-level comments on this article: (1 total)Thanks, Terry, very good information - our neighbors just did that and I had a friend who decided not to do it - she was worried about Japan and China holding much of our notes like this??? MarijoMarijo, thanks for reading and commenting. Like anything else, reverse mortgages have their pluses and minuses.
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