Reverse mortgages
are becoming more readily available and popular as a financing option,
particularly in the United States. These mortgages are generally
used by older people who have accumulated a substantial amount of
equity in their home. Most lenders require the borrower to be at
least 62 years of age. Reverse mortgages are a good way for them
to subsidize their retirement income.
The way a reverse mortgage works is by the lender
making payments to you based on the value of the equity in your
home as opposed to you making payments to a lender with a traditional
mortgage. Taxes and interest are added to the amount that needs
repaid, decreasing the equity in the home. The lender gets their
money after the house is sold or when the owner dies.
Most reverse mortgages
do not have to be repaid for a long time and some not at all, as
long as you continue to live in the property. The amount you are
loaned is based on your age, the value of your home and the current
interest rates.
Your loan is usually disbursed in
one of the following ways:
-
A lump sum that is given to you
or used to pay off debt or a combination of the two.
-
Fixed monthly payments that will
be made to you for a set period of time.
-
Fixed monthly payments that will
be made to you as long as you live in the home. These payments
will be smaller than the ones in the previous option.
-
As a line of credit.
-
As a combination of a credit line
and one of the payment options.
Some potential drawbacks of reverse
mortgages are:
-
You can only use your equity once.
If you use it to live on and have an emergency later it will
not be there.
-
There can be substantial fees
involved with reverse mortgages. There may be upfront fees as
high as $5000 dollars. It is wise to do some comparative shopping
when it comes to this type of financing.
-
Your payment amount may not meet
your needs. How much good will $100 a month do you if it is
going to cost you the equity in your home?
-
Your ability to receive government
pay outs such as SSI and Medicaid may be affected.
-
Make sure your lender is reputable.
The names of reputable lenders can be gotten from the Department
of Housing Urban Development.
-
Upon death, if repayment has not
been made, your home will go to the lender. This may not necessarily
be a bad thing, but it is something to consider.
These are a few of the facts
about reverse mortgages. These mortgages can be a big help if you
need money later on in life, but they also come at a price. Only
you can decide, based on your situation, if that price is worth
paying.
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