A reverse mortgage can become the topic
of hot debate between those who approve of this financial
plan and those who consider it a waste. But what is
a reverse mortgage and can it work for you? The bottom
line is that some people can truly benefit from a reverse
mortgage. Just be sure you’re entering into the
program with all your questions answered.
If you take out a reverse mortgage, you are borrowing
against any equity you have in your home, but agreeing
that you won’t have to pay the loan back within
certain restrictions. You also have to understand that
the amount due on this loan grows over the course of
the loan. Here’s how it works.
If you own your home, you can enter into a reverse
loan program. You borrow money against your home and
put your home up for collateral, just as with a traditional
loan. The difference is that you won’t make any
payments on the loan for as long as you live in the
house. At the end of the terms – meaning you move
away, die or otherwise end your agreement to continue
living in the house – the loan is due. You or
your heirs have the option to repay the loan or forfeit
the house.
As a rule, reverse mortgages are only granted to homeowners
who are at least 62 years old. You must own your home
outright or be in a position to pay any outstanding
debt against the house with the proceeds of the reverse
mortgage.
You can usually draw out the entire amount of the loan
as a single cash advance, or can arrange to have it
paid to you in regular installments (a monthly allowance,
for example). You may also simply draw against the loan
balance whenever you want.
When the loan comes due – usually upon the death
of the last borrower – the heirs can choose to
repay whatever is due against the loan which equals
the amount borrowed plus interest and fees. Some sell
the house, using the selling price to pay off the loan
and keeping the rest of the cash. Others allow the reverse
mortgage lender to simply claim the house and settle
the debt. One of the great things about a reverse mortgage
is that the amount due can never equal more than that
market value of the house.
Reverse loans aren’t for everyone, but keep in
mind that the equity you’ve accrued in your home
is an asset. A reverse loan could be the ideal way to
cash in on that asset.
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