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What Is A Reverse Mortgage
umors are that a reverse American laws dictate that the
mortgage is only for people homeowner must be 62 years and
of a certain age – usually older, own his house and live
seniors. True or false? there for majority of the time.
When they apply for a reverse
Reverse Mortgage: American Style mortgage, the amount they receive
will depend on their age, the
For the most part, it’s true, interest rates in effect at the
particularly if you consider how time of their application and the
they came about. In the United value of their house. The
States, reverse mortgages have applicant has the choice of
been around for some 20 years and receiving the loan in one lump
they were created when the sum, in monthly instalments, in
American Associated of Retired the form of a line of credit or
Persons lobbied the US Congress as a combination of the first
to come up with a financial three options.
product that would allow seniors
to stay in their homes as long as Unlike a regular or traditional
possible. It took awhile for the mortgage, a reverse mortgage does
product to catch the attention of not require the applicant to make
the public. According to Cathy monthly payments. The loan
Jett who wrote an article for a however must be paid in full once
Virginia newspaper, reverse the applicant sells the house or
mortgages have been gaining no longer uses it as a principal
popularity only in the last three residence. This makes owning your
years. house longer a feasible
alternative – you never run the
At its most basic level, a risk of losing your home provided
reserve mortgage is a loan that a you pay the appropriate property
homeowner takes out on his house. taxes and insurance. A reverse
mortgage resembles a traditional source of additional income. They
or regular mortgage only insofar may want to travel, renovate or
as closing costs are concerned, help a son or daughter still in
including any fees that apply for university.
servicing the loan and other such
upfront costs. There was this one woman who
applied for a reverse mortgage
Reverse Mortgage: Canadian Style because she needed money. The
bank gave her $50,000; she does
The principles that lie at the not have to repay that amount for
core of an American and Canadian a certain number of years and for
reverse mortgage are the same. as long as she lives in the
Like the US, this kind of house.
financial product appeals to
older Canadians. In cases where A reverse mortgage therefore is
Canadian seniors get divorced – ideal for seniors who have a
as an example - and there isn’t house but have a low income, and
much by way of assets and hard need financial resources to
cash, the house remains the most continue living. Reports indicate
important asset of Canadians. that on the average, houses
During a divorce, the husband may constitute 80% of Canadian
get the money and the wife the seniors’ assets. If their income
house. Those who end up with the or pension is low, they don’t
house are therefore house-rich have the necessary cash required
but cash-poor. to meet their day-to-day. So with
a reverse mortgage, seniors can
For Canadian seniors who own a avail of a lump sum amount with
house that is fully paid or no obligation to pay it back for
almost paid for, their piece of a certain number of years and as
real estate can be an excellent long as they remain in their
homes. Reverse Mortgage: Think of
Alternatives
A writer, P.J. Wade, says it’s a
great way to have your home and Before you apply for a reverse
money as well. A reverse mortgage mortgage, gather at least two or
enables an applicant to tap into three opinions. Your banker may
the equity of his home for cash. offer alternatives. Many lenders
agree that a reverse mortgage
Some experts recommend not taking should only be regarded as a last
a reverse mortgage until you’re resort. One alternative is a home
in your 60s. Applying for a equity line of credit, where you
reverse mortgage in your 50s could have a source of cash by
means that you’re still young by using your house as security.
the time the equity in your house Another alternative is, if your
is gone. This is the downside children have left home and you
associated with reverse have a spare bedroom or you don’t
mortgages. The equity disappears use your basement much, you may
after a certain number of years want to consider renting it out
and the life of the loan ends, for added income.
with the principal still
outstanding and huge interests to Downsizing is another option. It
boot! used to be that your house was
comfortable because the kids were
There’s a match to this downside. growing up and had friends over,
When you have a reverse mortgage, and you and your husband
and you’re unable to pay your entertained a lot. If you don’t
debt, your house cannot be need your sprawling cottage
foreclosed even if the amount anymore, and you can’t keep up
exceeds the value of your house. with the maintenance, wouldn’t it
be wiser to sell it in exchange
for a smaller home? premiums as well as cough up
amounts for repairs and
To Reverse or Not to Reverse? improvements to your house?
Remember that failure to pay
If you’re at a loss about taxes can oblige the lender to
choosing between a reverse demand full repayment of the
mortgage and a cheaper mortgage.
alternative like a line of
credit, test your feelings with • Will you have sufficient
these questions: resources to meet interest and
principal payments on the reverse
• Can you honestly say that you mortgage once they fall due?
love your house and can’t bear to
move to another place? Are you • Finally, speak to some of your
perfectly willing to do what friends who have reverse
needs to be done to keep it in mortgages. Find out what their
tip top shape? experience has been. Are they
glad they did it, or wished now
• Will you be able to sleep at they hadn’t?
night knowing that the money you
acquired against your house via a Interrogate your lender if you
reverse mortgage will eventually must, no matter how repetitive
have to be paid in full and your questions are. Your lender
before accumulating debt eats up might just utter something that
your equity? will raise your antennas higher
or convince you that reverse
• Are you in a position to pay mortgages are the way to go!
the property taxes and insurance
About the Author:
David Beart is the owner of www.professorshouse.com. Our site covers mortgages, family, cooking and other household issues.
Read more articles by: David Beart
Article Source: www.iSnare.com |
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