Who Could Benefit From A Reverse Mortgage?

What is a "Reverse Mortgage?"

Also known as a Home Equity Conversion Mortgage (HECM)a reverse mortgage,is a popular way older homeowners (62+) can convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payments.

Before explaining a reverse mortgage, let's review the features of a Standard Mortgage:

With a standard loan or mortgage, your income stream is used to 'qualify' for the mortgage or loan. The lender will want to see that you have enough cash flow from your job and other sources of income in order to make the payments.

By securing this loan or mortgage against your house, the bank has extra security. After all, if you stop paying, they can take away your house.

As the years go by and you continue to make the payments, you will build up 'equity', which is the difference between what your house is worth, and how much you owe on the loan or mortgage What you owe will be continually reducing as you pay off the principal.

A Reverse Mortgage ... Reverses The Process:

A reverse mortgage, in contrast, requires no proof of income, no credit checks etc.. You simply have to own the home you are borrowing against.

The reason for this is that interest payments are 'rolled up' on the reverse mortgage - i.e they are added to the loan, and not repaid monthly.

Over time, of course, this starts to eat up your equity, because as each interest payment is added to the loan, interest starts being charged on the previous interest too!

Who Would Benefit From A Reverse Mortgage?

Older homeowners (62+), who struggle on limited pensions are usually living in properties that have soared in value in recent years. With reverse mortgages they can unlock some of the value in their homes and remain in the property at the same time, thus enhancing their retirement years.

These reverse mortgages are becoming more popular with seniors.

Paying Back The Loan

There are NO monthly payments due on a reverse mortgage while it is outstanding. The mortgage/loan is repaid when the homeowners cease to occupy the home as a principal residence, whether the homeowner (the last remaining spouse, in cases of couples) passes away, sells the home, or permanently moves out.

Depending on the size of the loan and the current real estate market conditions, there may actually be no equity left when the loan is finally repaid. If the debt comes to exceed the value of the property, the FHA or the lender takes the loss.

As well, loans under these programs are without recourse. This means that lenders can not attach other assets of borrowers or their heirs in the event that the reverse mortgage debt exceeds the property value.

On a another note, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.

There will always be some concern with homeowners who would like to leave an inheritance for their children and the home is to be that cash inheritance.

Note:

As with all loans, be careful not to default on regular or common charges, such as property tax, insurance, utilities etc, as these could all lead to the loan/mortgage being reclaimed early (foreclosed).

Typically, the lender will have an option built in to the contract to increase your debt by paying these charges on your behalf, should you default, and this is not an option you want them to exercise, as you will then start paying interest on those charges too!

Reverse mortgages can be very useful, but treat carefully as they can also have a sting in their tail.

Keep an eye on the outstanding balance every month, versus the value of your home for peace of mind.

And as with most major decisions, speak to an expert who knows your situation and long term plans before applying for a reverse mortgage. As a matter of fact, in the U.S., mandatory counselling is required prior to applying for a reverse mortgage. An approved counsellor will educate you about reverse mortgages and determine whether this is your best option. Then, given your particular situation assist you in determining which reverse mortgage product best suits your needs. The U.S. Department of Housing and Urban Development has a list of approved counselling agencies posted online at Home Equity Conversion Mortgages Resources.

AARP has also entered the picture as a major information source for reverse mortgages (www.aarp.org/revmort). They have a guide (including a nifty calculator) that can help you figure out if a reverse mortgage is right for you.

For Canadians: - Shop Carefully!

Although home equity conversion products (reverse mortgages) are widely available in the US, Canadian homeowners have a more limited selection. You can check out the Canadian Home Income Plan. Canadian Home Income Plan.

Helen March offers simple House And Home Sense solutions for buying or selling real estate as well as informative articles for home improvement and lifestyle alternatives. Visit House And Home Sense.com

---

No Money Down Mortgage Loans - Ways To Get Approved For a Home Loan Online With Zero Down

No money down mortgage loans enabled more people to own... Read More

Mortgage: Effective Household Investment for Financial Autonomy

If finances had a copyright, we would have bought it... Read More

Lesser Known Facts About Home Equity Loans

Refinancing your debt via a home equity loan shifts your... Read More

Sorting through mortgage elimination programs

Mortgage elimination programs are all the rage these days. In... Read More

New Home Loan - Understand The Various Types Of Mortgage Lenders

So, you've decided to buy a house, and you're ready... Read More

Bad Credit Mortgage Lenders - Things You Should Know About Subprime Lenders

Interest rates and fees vary between subprime lenders just like... Read More

Choosing The Right Buy-To-Let Mortgage

Buy-to-let took off during the 1990s with the increasing availability... Read More

Multi Family Property Living

While most multi family properties are designed to allow the... Read More

How To Tap In To Your Home Equity

With today's relatively low interest rates and climbing property values,... Read More

Florida Refinance - Refinancing in Florida

The decision to buy a home in Florida can be... Read More

Home Loans ? Lenders Continue to Offer High-Risk Loans

Home prices in the Untied States continue to soar, and... Read More

How To Turn Disadvantages Of A Reverse Mortgage To Your Advantage

When it comes to a reverse mortgage, wise consumers weigh... Read More

Home Equity Loan ? With a Reverse Mortgage, Your Home Pays You!

The home equity loan has become quite popular in the... Read More

7 Credit Improving Steps You Must Take Before Applying For A Mortgage

If you think you have good credit, think again. Chances... Read More

How to Get Your Home Mortgage Loan

If you are thinking of purchasing a new home soon... Read More

Home Loans -- The Hot New Product? The 30-year, Fixed-rate Mortgage

In recent years, the mortgage industry has introduced dozens of... Read More

Which is Better? Fixed-Rate or Adjustable-Rate Mortgages

The answer depends on several factors including your financial situation.... Read More

Where To Find The Best Rates For Your Mortgage?

As with all of my articles this will be based... Read More

What Exactly Is A Reverse Mortgage And How Does It Work?

A reverse mortgage is a certain loan that allows the... Read More

Bridging Loan Basics

A Bridging Loan is a short-term loan used as a... Read More

How to Find Cheap Home Improvement Loans

If you have home improvements that you'd like to see... Read More

Finding the Best Mortgage Lender Online

Finding the best mortgage lender online is simply a matter... Read More

How To Determine The Price Of Your Home

Why is it that some homes sit on the market... Read More

Be Prepared when Seeking a Mortgage

When you're looking for a mortgage, whether it's a first... Read More

Home Equity Loan ? Still a Better Idea Than a 401(K) Loan

Anyone who borrows money is always looking for the cheapest... Read More

Build Your Own Dream House!

So you're thinking about building your own house, are you?... Read More

Home Equity Loan Improvements

There's more Regulation Z compliance on the way, courtesy of... Read More

Revive Mortgage Tenure With Extend Loan Term Remortgage

You are comfortably wedged in a mortgage deal, paying the... Read More

Mortgage Basics for First Time Home Buyers

Anyone planning to take out a mortgage for the first... Read More

A Mortgage Loan For Homes

Everybody wants to own a house because it is something... Read More

Getting The Best Rates On Mortgages And Loans

With an impending up-grade to the family due in a... Read More

An Infinity Mortgage?

Here in Spain the concept of a mortgage period of... Read More

A Guide to Selecting a Mortgage Broker in Australia

Once you have made the decision to buy a home... Read More