6 Things You Need To Know About A Reverse Mortgage

Understanding Reverse Mortgages

Although each reverse mortgage is unique, they all have one common characteristic. A reverse mortgage is what the term implies. It is the opposite of the usual mortgage wherein your lender sends you regular checks instead. Rather than having a hard time coming up with the money to pay for the first down payment, you can augment the money for your daily needs through retirement. If you're interested, here are six more things you need to know about a reverse mortgage.

1Deciding For Your Retirement

The biggest and most significant asset of any homeowner, particularly those who are near retirement age, is home equity, which refers to the difference between the outstanding mortgage and the current value of your home on the market. Expect the value of your home to appreciate over the years, as long as no major issues come up. So, once it's time for you to retire, it's possible for your total mortgage balance to be zero, even, or just around even.

2The Value Of Equity

Once retirement comes, some homeowners will discover that their equity has increased, which is a good thing. Your equity can help finance your retirement, whether you decide to sell or not. There are numerous options for you, such as selling your property or moving into a new house, which you could buy or rent, and you can also opt for a reverse mortgage. Through this, you'll receive an income that's based on how much equity your home has, and you won't have to sell anything. Once you retire, there are various options as regards to what you can do with your home, and a reverse mortgage is just one of them.

3How A Reverse Mortgage Works

Let's say that you are satisfied with your home, but you're wondering if there's a way for you to increase the money that you have for retirement, which is where a reverse mortgage comes in. A lot of people are lucky enough to live in comfy and spacious homes, yet what they lack is money for daily expenses. Through a reverse mortgage, you can tap into the equity of the property that you are currently living in. This concept may sound strange and highly doubtful to some, especially since paying off a house's mortgage takes decades, and no one wants to deal with that again through reverse mortgage once they finish the payments. Granting the concept is new and seems like a bad idea, but there are a few benefits to it.

4How A Reverse Mortgage Benefits You

The term "reverse mortgage" exactly means what it implies, which is the reverse or the opposite of the typical mortgage process. When you bought your new house many years ago, it's possible that you had to work hard to get money so that you can come up with that initial down payment. Afterward, you mail your monthly mortgage payments to your lender, which often goes to the interest, particularly during the early months, and your total principal loan reduces in time. As for the reverse mortgage, it is your lender that sends you regular checks. Since the check is money that's classified as a loan, it is not taxed.

5Payment Options For Reverse Mortgage

Once you finalize your reverse mortgage agreement, you'll need to decide how you'll claim the money. Monthly payments are quite common since people normally need cash for daily living. On the other hand, in case your money needs are irregular, you can choose a line of credit wherein you can write a check and withdraw a certain amount whenever there's a need.

It's also possible to get a lump sum instead or combine a few payment strategies to match your needs. Take note that lenders generally offer similar options, and each reverse mortgage plan is unique. There are also mediocre, terrible, and exceptional offers.

6Who Shoulders The Losses

Individuals who hear about the reverse mortgage for the first time have the same fear. What if a homeowner is forced out of his property because he owed more than the total value of his house? Although many fear this risk, consumers are protected by federal law which necessitates lenders to make reverse mortgages as non-recourse loans, which means that the only asset that a person can tap into is the total value of his property. So, it will be a rare occurrence for someone's property value to become lower than the total owed amount, especially in reverse mortgage. In case this does occur, it is the lender who will shoulder the loss.

About Author

John Quintana

John Quintana is a proud Cuban, a lifelong resident of Miami, Florida, where he lives surrounded by a loving family. When he's not writing, he spends his time either fishing or in the kitchen.